Bloomberg News

GSC Chapter 11 Trustee Settles With SEC Over CDO Marketing

June 22, 2011

(Updates with details of settlement in second paragraph.)

June 22 (Bloomberg) -- GSC Group Inc.’s federal trustee reached a settlement with the U.S. Securities and Exchange Commission over the bankrupt investment firm’s marketing of collateralized debt obligations that defaulted in 2008.

GSC asked a U.S. bankruptcy judge to approve the SEC accord in a motion filed yesterday in Manhattan. GSC would pay no monetary damages. JPMorgan Chase & Co., under a settlement announced yesterday, agreed to pay $153.6 million to end an SEC lawsuit tied to the CDOs.

The settlement centers on an investment managed by GSC called Squared CDO. GSC failed to “adequately inform” investors that Magnetar Capital LLC, a hedge fund that had a role in selecting the portfolio of CDOs, made a bet valued at $600 million that the securities would decline in price, the SEC said. The CDOs defaulted in January 2008 and investors lost most of their money, according to court papers.

A hearing to approve the settlement is set for July 13. Black Diamond Capital Management LLC has agreed to buy GSC’s assets.

The case is In re GSC Group Inc., 10-14653, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

--Editors: John Pickering, Stephen Farr.

To contact the reporter on this story: Don Jeffrey in New York at djeffrey1@bloomberg.net.

To contact the editor responsible for this story: John Pickering at jpickering@bloomberg.net


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