Audit Notes: Magnetar, ICP Unmasked, Communities vs. Corporations

The Wall Street Journal reported this weekend that the SEC is ratcheting up its investigation of Magnetar, the hedge fund that almost singlehandedly kept the housing bubble going by buying CDO equity tranches so it would have something to short.

Good news.

Among other things, investigators want to know how the assets that were put into the CDOs were valued at the time, what the terms of the deal were, what triggers were put in place to determine whether investors would incur losses and at what point did firms involved in the deal bet against the assets in the CDO, people familiar with the matter say.

It’s worth noting that this increased scrutiny follows tough reporting from not only the Journal, which wrote about Magnetar’s doings way back in early 2008 (see The Audit take here), but also Yves Smith, who got even more of the story in her book ECONned, and of course, from ProPublica, which took it to the next level with its investigation this spring.

I have a feeling we’ll be hearing much more about Magnetar.

— The SEC has finally sued its first CDO asset manager. ICP Asset Management gets the honors. Here’s the Times:

Mr. (Thomas) Priore was also charged by the S.E.C., which said he had breached his duties to Triaxx’s investors in favor of investors in his other vehicles.

For instance, the commission said that in the middle of 2008, one of ICP’s vehicles faced margin calls from its lenders. To raise cash for those calls, ICP sold hundreds of millions of dollars of bonds from that vehicle to the Triaxx C.D.O.’s at inflated prices. The C.D.O.’s overpaid by about $40 million, the complaint said…

ICP marketed the Triaxx deals when they were created in 2006 and 2007 by using A.I.G.’s name. The firm said in marketing materials that A.I.G. would serve as a “collateral manager,” approving trading by the Triaxx vehicles. But ICP repeatedly misled A.I.G. about its actions, the complaint said, even during 2008 as A.I.G. neared the brink and was rescued by a taxpayer bailout.

Unfortunately, ICP is apparently not affiliated with the awful Insane Clown Posse. Imagine the copy if it were!

For more on the CDO-manager business, read this Bloomberg piece, which I wrote about here.

— H. Brandt Ayers, publisher of Alabama’s Anniston Star (an alma mater of The Audit’s own Dean “Bear” Starkman), is speaking my language:

The family paper, once the dominant form of ownership, is disappearing. There are fewer than 250 left out of roughly 1,500 dailies. Their disappearance is part of a vast and growing depersonalization of society.

Let’s talk about the difference between a corporate chain paper and The Star. A corporate publisher is a manager dangling at the end of a long corporate chain; he or she either doesn’t care or can’t act independently…

The Wall Street Journal isn’t going to cover Anniston’s colorful city council and The New York Times will not follow the rising football fortunes of Oxford or Wellborn. If we were gone, there’d be a near-total news blackout. Radio news is dead, Birmingham TV doesn’t cover us. We’re the only game in town.

That is profoundly important because our society is becoming more isolated and depersonalized and suffers a deficit in leadership. The presidents of local banks were generals of a civic army; their officers and directors were the officer corps of that army. That army is gone, replaced by massive corporations who do not see or care about the civic health of a city. The Victoria Inn is the last act of civic entrepreneurship by a local bank.

Today, Wall Street and Big Banks don’t care about communities; Wal-Mart and big-box stores aren’t gathering places that foster community.

Amen to all that.

(h/t Romenesko)

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Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at Follow him on Twitter at @ryanchittum.