SEC shuts down NIR Capital Management
18 December 2013 North Carolina
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The Securities and Exchange Commission has charged the managing partners of a North Carolina-based investment advisory firm for compromising their independent judgment, and allowing a third party with its own interests to influence the portfolio selection process of a collateralised debt obligation (CDO) being offered to investors.
The investment managers have agreed to collectively pay more than $472,000 and exit the securities industry to settle the SEC's charges.
According to the SEC, disclosures to investors indicated that NIR Capital Management was solely selecting the assets for Norma CDO I as the designated collateral manager. However, NIR's Scott Shannon accepted assets chosen by hedge fund firm Magnetar Capital for the Norma CDO's portfolio, and Joseph Parish III allowed Magnetar to influence the selection of some other assets.
Shannon himself called at least one of the residential mortgage-backed securities (RMBS) ultimately included in the portfolio a "real stinker."
Magnetar bought the equity in the CDO but also placed short bets on collateral in the CDO and therefore had an interest not necessarily aligned with potential long-term debt investors that relied on the CDO and its collateral to perform well.
The SEC also today announced charges against Merrill Lynch, which structured and marketed the Norma CDO.
"Shannon and Parish could not serve two masters," said George Canellos, co-director of the SEC's division of enforcement. "They allowed Magnetar to influence asset selection and abdicated their duty to pick only the assets they believed were best for their client."
Shannon agreed to be barred from the securities industry for at least two years and must pay disgorgement and prejudgment interest of $140,662 and a penalty of $116,553. Parish agreed to be suspended from the securities industry for at least 12 months and must pay disgorgement and prejudgment interest of $140,662 and a penalty of $75,000.
Without admitting or denying the SEC's findings, Shannon and Parish consented to dissolve the NIR business.
The investment managers have agreed to collectively pay more than $472,000 and exit the securities industry to settle the SEC's charges.
According to the SEC, disclosures to investors indicated that NIR Capital Management was solely selecting the assets for Norma CDO I as the designated collateral manager. However, NIR's Scott Shannon accepted assets chosen by hedge fund firm Magnetar Capital for the Norma CDO's portfolio, and Joseph Parish III allowed Magnetar to influence the selection of some other assets.
Shannon himself called at least one of the residential mortgage-backed securities (RMBS) ultimately included in the portfolio a "real stinker."
Magnetar bought the equity in the CDO but also placed short bets on collateral in the CDO and therefore had an interest not necessarily aligned with potential long-term debt investors that relied on the CDO and its collateral to perform well.
The SEC also today announced charges against Merrill Lynch, which structured and marketed the Norma CDO.
"Shannon and Parish could not serve two masters," said George Canellos, co-director of the SEC's division of enforcement. "They allowed Magnetar to influence asset selection and abdicated their duty to pick only the assets they believed were best for their client."
Shannon agreed to be barred from the securities industry for at least two years and must pay disgorgement and prejudgment interest of $140,662 and a penalty of $116,553. Parish agreed to be suspended from the securities industry for at least 12 months and must pay disgorgement and prejudgment interest of $140,662 and a penalty of $75,000.
Without admitting or denying the SEC's findings, Shannon and Parish consented to dissolve the NIR business.
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