Hedge fund manager Phil Goldstein once said that when Massachusetts Secretary of the Commonwealth Bill Galvin looks in the mirror in the morning, he sees Eliot Spitzer. Granted, he said this before certain aspects of Client Number Nine’s private life hit the front pages, but the point was made.
And while Spitzer moves from one failed media venture to another—undoubtedly paying very close attention to a certain South Carolina House race—Galvin still carries the torch and a copy of the Bay State’s securities law. That law must be unusually broad, because he’s used it to fine a German bank $17.5 million for naughtiness related to a CDO created with an Illinois-based hedge fund.
In a statement, Massachusetts Secretary of the Commonwealth William Galvin said Deutsche Bank Securities Inc. failed to supervise its employees who “knew but failed to disclose” such conflicts concerning the collateralized debt obligation, known as a CDO. The investigation into such conduct centered on a Deutsche Bank proprietary trading desk called the Special Situations Group….
“Nowhere in the marketing materials for Carina was there any reference to the conflicts of interest with DBSI SSG and Magnetar in the structuring, underwriting and marketing of Carina,” the regulator said….
Additionally, Massachusetts said that while Carina was being marketed to investors, one such client backed out upon learning that Magnetar was shorting the triple-B-rated assets in the CDO.
Within a year, rating agencies downgraded Carina to junk status, “which resulted in catastrophic losses to investors,” the regulator said.