In the months before the deal closed in May 2007, the bank made a "frantic global sales effort" to sell the Squared securities amid signs of distress in the housing market, the SEC said in a statement.
"We are soooo pregnant with this deal, we need a wheel- barrel to move around," wrote a JPMorgan employee in charge of distributing the CDO in a March 2007 e-mail meant to encourage the sales staff, according to the SEC complaint. "Let's schedule the cesarian, please!"
The SEC also sued Edward Steffelin, a former GSC executive, for allegedly allowing the distribution of marketing materials that omitted Magnetar's role. Steffelin was seeking employment with the hedge fund at the time, Khuzami told reporters.
"We do not understand how the SEC can charge Mr. Steffelin with a failure to disclose in the case where he didn't even work for the underwriter, who has the responsibility for the disclosure," said his attorney, Alex Lipman of Nixon Peabody LLP. "The disclosures were vetted by lawyers, who had all of the relevant information. It appears that their appetite for charging individuals is so great that they're willing to ignore all of these facts."
The SEC has also looked at Wall Street CDO underwriters including Citigroup Inc., Deutsche Bank AG, UBS AG and Morgan Stanley, a person familiar with the matter has said.