SEC issues more fines over Magnetar deals – and appears to move on

There have now been more than $435 million in SEC settlements regarding one of the most notorious groups of mortgage securities deals behind the financial crisis

Five years after the financial crisis, the Securities and Exchange Commission appears to be wrapping up its investigation into more than $40 billion worth of controversial mortgage deals that helped turn the financial crisis into the worst economic collapse since the Great Depression. Today, the agency announced fines against Merrill Lynch for its role in sponsoring three of the securities with a total value of $4.5 billion.

Merrill, which is now owned by Bank of America, agreed to pay a fine of $131 million, but did not admit wrongdoing in the deals, which were created at the behest of an Illinois-based hedge fund called Magnetar.

As ProPublica detailed in 2010, Magnetar worked with investment banks to build CDOs that the hedge fund also bet against. Magnetar would buy the riskiest part of the CDO, which gave it influence in picking which bonds would be included in the CDO. In turn, the hedge fund pushed riskier bonds that would make the investment more likely to fail.

The fines against Merrill are the just the latest in a long series of Magnetar-related SEC settlements, now totaling more than $435 million.

“We are pleased to resolve this matter, which pre-dated Bank of America's acquisition of Merrill Lynch,” said William Halldin, a spokesman for the bank.

A North Carolina-based asset manager called NIR Capital Management was also fined over one of the three mortgage deals, known as collateralized debt obligations. NIR agreed to pay $472,000 for its involvement in a $1.5 billion deal called Norma. As part of the SEC order, NIR will cease operations and its two principals, Joseph Parish III and Scott Shannon, will be barred from working in most aspects of the financial services industry for one and two years respectively.

A lawyer for the two declined to offer a statement.

The latest charges are less serious than some earlier CDO-related charges. The agency charged another CDO manager and its chief executive with fraud in October. And it fined Goldman Sachs $550 million for its role in another non-Magnetar CDO.

Magnetar, which approached investment banks in 2006 and 2007 with an elaborate plan to create collateralized debt obligations, said today that the SEC has ended its investigation into the firm’s activities. While the SEC has levied fines against several banks over Magnetar deals, it has never taken any action against the hedge fund.

“We are happy to report that the SEC has issued a closing letter to Magnetar, which confirms that the Staff has completed its investigation as to Magnetar’s activities regarding the relevant CDOs and will not recommend any action against the firm, its funds or any of its personnel,” the firm said in a statement.

The SEC declined to comment beyond the charges it has already brought.

Merrill and Magnetar collaborated on four CDOs, all named for constellations, a trademark of the hedge fund. The SEC singled out three – Norma, Octans and Auriga – in the settlement.

The SEC’s order uses emails and other communication to detail Magnetar’s role in creating the CDOs. The hedge fund was a valued customer of Merrill because it was willing to do multiple transactions. In the end, Merrill’s business with Magnetar made the bank more than $40 million. The hedge fund selected many of the assets that went into the CDOs and rejected others. Magnetar then bet against many of assets. Investors who subsequently invested in the CDOs were unaware of Magnetar’s extensive role in the transactions. The SEC found that Merrill’s marketing material for the deals was misleading since it did not detail Magnetar’s role.

The SEC also hit Merrill over a “books-and-records” violation for improperly recording the appreciation of assets to avoid overpaying Magnetar on a deal.



Sexual Harassment Act: Understanding pros and cons for women

The Sexual Harassment Act if implemented well would go a long way in protecting women employees. Anagha Sarpotdar and Adv Mini Mathew, speaking at a Moneylife Foundation seminar, explained issues of workplace sexual harassment and guided on how to deal with such cases

Media coverage of the complaint against Tarun Tejpal and Justice Ganguly (retired Supreme court judge) have only brought home the fact that most people are clueless about the stringent new provisions of the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 (Act).


Moneylife Foundation invited Anagha Sarpotdar, a consultant of gender and socio-legal issues and Advocate Mini Mathew to address issues related with sexual harassment at workplace in its 192nd seminar held on 18 December 2013 at the Indiabulls Finance Centre, Mumbai.


Ms Sarpotdar explained the overview of the Act and its obligations and implications for companies and employees. Adv Mathew, while explaining the impact of the Act on organisations, structure of anti-sexual harassment committees and compliance requirements, reminded the audience about Bhanwari Devi still not getting any justice. It was the Bhanwari Devi case, after which Vishakha and other women’s groups filed the public interest litigation (PIL) in the Supreme Court resulting in what are popularly known as the Vishaka Guidelines. Following the 16th December Delhi gang rape and subsequent protests, the government brought acts of sexual harassment under the Criminal Law.


Ms Sarpotdar said, the law casts an obligation upon the employer to address the grievances in respect of sexual harassment at workplace in a time-bound manner, which in several cases may not be practically possible as the employees or witnesses involved may not easily or readily co-operate.


Several times repeated complaints about sexual harassment to immediate seniors and the human resources (HR) department yield no result. “In fact, senior management ignore the sexual harassment complaint and sometimes encourage it. Even at some places harassers are backed and supported by the companies by footing their legal bills,” Ms Sarpotdar said.


She said, the definition of 'aggrieved woman' in the Act does not make a reference to victimisation on the part of the employer of the employee who has made the complaint of harassment, which would be fairly common in such situations. Also, in order to cover some of the technological developments, words like 'verbal, textual, physical, graphic or electronic actions' should have been added in the definition of 'sexual harassment', Ms Sarpotdar said.


The Act mandates the employer to provide a safe working environment and display conspicuously at the workplace, the penal consequences of indulging in acts that may constitute sexual harassment and the composition of the Internal Complaints Committee (ICC).


Ms Sarpotdar said there are no well laid policies for employers for dealing with complaints of sexual harassment. There is zero or low awareness amongst employers about these policies and most of the policies are not in sync with Vishakha guidelines. Even external agencies like Labour Commissioner, Women Commissions and Police are not well informed about sexual harassment complaints, especially the Vishakha guidelines.


She said Labour Commissioner has not complied with the Medha Kotwal interim order and judgement, while Women Commissions are toothless and inefficient and Police are clueless about Vishakha guidelines. 


The Supreme Court, in its landmark judgment in Vishaka and others vs. State of Rajasthan (Vishaka Judgement), laid down guidelines making it mandatory for every employer to provide a mechanism to redress grievances pertaining to workplace sexual harassment and enforce the right to gender equality of working women. These guidelines are known as Vishakha Guidelines.


Adv Mathew said, “The Act stipulates that a woman shall not be subjected to sexual harassment at any workplace, including organised as well unorganised sector. As per the Act, a workplace also covers within its scope places visited by employees during the course of employment or for reasons arising out of employment - including transportation provided by the employer for the purpose of commuting to and from the place of employment”.


“Sexual Harassment Act has been enacted with the objective of providing women protection against sexual harassment at the workplace and for the prevention and redressal of complaints of sexual harassment. Sexual harassment is considered as a violation of the fundamental right of a woman to equality as guaranteed under Articles 14 and 15 of the Constitution of India and her right to life and to live with dignity as per Article 21 of the Constitution. It has also been considered as a violation of a right to practice or to carry out any occupation, trade or business under Article 19(1)(g) of the Constitution, which includes a right to a safe environment free from harassment,” she said.


“The definition of sexual harassment includes any unwelcome sexually determined behaviour (whether directly or by implication) such as physical contact and advances, demand or request for sexual favours, sexually coloured remarks, showing pornography, or any other unwelcome physical verbal or non-verbal conduct of sexual nature.”


Adv Mathew said, as per the Act, employers are mandated to set up an internal complaints committee (ICC) at each office or branch where there are at least 10 employees. Similarly, the government is also required to set up a local complaints committee (LCC) at the district level. The LCC would investigate complaints from establishments where ICC has not been constituted or if the complaint is against the employer. Both the ICC and LCC are required to follow process and inquire into the complaints in time bound manner, she said.


Both the ICC and LCC, at the request of the complainant, can recommend interim relief measures like transfer of the aggrieved woman or the respondent to any other workplace; or granting leave to the aggrieved woman up to a period of three months in addition to her regular statutory or contractual leave entitlement.



  1. A written complaint has to be filed by the female employee within three months of the date of the incident.
  2. The inquiry has to be completed within 90 days.
  3. The inquiry report has to be issued within 10 days from the date of completion of inquiry.
  4. Employer is required to act on the recommendations of the committee within 60 days of receipt of the inquiry report.
  5. Appeal against the decision of the committee is allowed within 90 days of the date of recommendations.

If an employer fails to constitute an Internal Complaints Committee or does not comply with any provisions contained therein, the Act prescribes a monetary penalty of up to Rs50,000.


Adv Mathew said, a new section is added in the Indian Penal Code through the Criminal Law (Amendment) Act, 2013 enlisting the acts which constitute the offence of sexual harassment and further envisages penalty / punishment for such acts. “A man committing an offence under this section is punishable with imprisonment, the term of which may range between one to three years or with fine or both. Since the amendment criminalizes all acts of sexual harassment, employers are mandated to report any offences of sexual harassment to the appropriate authorities,” she added.


According to Adv Mathew said, in order to ensure that the Act does not get misused, certain provisions for action against false or malicious complainants have been made.




3 years ago

WILL THE EMPLOYERS FOLLOW MANDATE RELIGIOUSLY ,...something ,,like , carnivores started to root for grass??,..... cautious OPTIMISM ,though.

nagesh kini

3 years ago

The particulars for accessing the PIO has to be displayed prominently why now the Sexual Harrassment Committee.
By the way how many inc. the Supreme Court have yet to set up their respective set-ups?



In Reply to nagesh kini 3 years ago


Difficult choice to make between shale oil & gas and coal bed methane!

Vivek Rao, Oil Secretary, proposes to allow private companies to explore for shale oil & gas in their existing blocks. He feels that India has better coal bed methane opportunities than from shale oil & gas

Recently, at the 8th Asia Gas Partnership Summit 2013, Maria van der Hoeven, executive director of the International Energy Agency (IEA), Paris-based autonomous body, with 28 member countries, spoke to the press. She said that public support, because of the density of population, and substantial quantity of water resources was needed in the development of shale oil/gas, though many countries like India may have reserves of the same.


In addition to these, for proper shale exploration, there was great need for infrastructure development as well as facilities for transportation of gas when found. Besides, she felt that the gas price was "low" in India at the moment, but hinted that this may be workable when revised prices became operative next year.


In passing, one may mention that thanks to recent developments in the shale oil & gas industry, USA is said to become the world's largest producer of oil & gas (hydrocarbons) by 2015, overtaking Russia in the process. In the case of USA, shale oil & gas is "owned" by the owner of the land where it is "found", while, in the case of India, it belonged to the "state" (i.e. it becomes government property!). According to the IEA, by 2015, when USA surpasses Russia as the world's top oil producer, crude oil price is projected to reach $128 per barrel by 2035. However, by 2020, shale production is likely to plateau and the US may start losing its top rank by 2030.


As per IEA (International Energy Agency), by 2035, India may be able to produce about 35 billion cubic metres of shale gas and 25 billion cubic metres of coal bed methane, if serious attempt is made to development the known reserves in the country.


It may be recalled that ONGC was the first to strike shale gas in a pilot project at Ichhapur in Burdwan, West Bengal couple of years ago. Now, they have embarked on the first commercial exploration of shale gas and the first well has been drilled at Jambusar-55 in the Gujarat Cambay Basin, according to NK Verma, director of exploration at ONGC, who has signed a memorandum of understanding (MOU) with Conoco Phillips of USA. Once the tests are carried out, it is expected that ONGC may proceed to drill wells at Krishna-Godavari, Cauvery and Damodar basins. The outcome of the effort is anxiously awaited.


The Petroleum Ministry auctioned 30 coal bed methane blocks in four rounds, with three others being allocated on a nomination basis. Vivek Rao, the oil secretary, has stated that the Ministry proposes to allow private companies to explore for shale oil/gas in their existing blocks, and said that he felt that India has better coal bed methane opportunities than from shale oil/gas. He further stated that while the Ministry has a policy on coal bed methane, currently, India does not have a policy regime for simultaneous extraction of both coal bed methane and coal. This is a grey area that needs to be looked into seriously so that there are no ambiguities in development of these essential items.


ONGC is currently exploring coal bed methane in Singrauli, Madhya Pradesh and the Godavari valley (north) in Andhra Pradesh. It had plans to dilute 25% of its holdings in Ranigunj, north Karanpura blocks and in Bokaro, but the associate Dart Energy has accepted this offer only in Bokaro, as several major issues including fiscal responsibility, sharing of past expenses etc are in various stages of discussions. A draft pact, when ready, will be placed before the Board and the the union government for clearance, so that work in this area can also move without hindrances.


Our natural resources of water are limited; we still do not have the technology in place to process the waste water that is most likely to pollute the ground water; we need not to overlook the aquifer contamination by methane, fracking chemicals such as benzene and other fracking by-products. In fact, way back in 2011, UK is said to have linked fracking to mini earthquakes! Even in the USA, environmental groups have put up stiff resistance against fracking as it can use a lot of water in parched areas.


Vivek Rao candidly stated that we do stand a better chance with developing coal bed methane which is simply evaporating from coal mines rather than taking a great risk with shale oil & gas exploration.


If anything, we must encourage companies like ONGC, Reliance, Oil India, Indian Oil and similar others to invest in countries like the USA, where they have the natural water resources and advanced technology to obtain shale oil & gas and import the finished products from there.


Future wars will be fought on water issues. Chinese action on the Brahmaputra and Pakistani claims on Indus are enough indications as to what may happen in the near future.


(AK Ramdas has worked with the Engineering Export Promotion Council of the ministry of commerce. He was also associated with various committees of the Council. His international career took him to places like Beirut, Kuwait and Dubai at a time when these were small trading outposts; and later to the US.)


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