In Michael Lewis’ 2010 book The Big Short: Inside the Doomsday Machine, Lewis took a look into the housing and credit bubble that was built up in the early years of the millennium. In so doing, Lewis spent 28 weeks on the New York Times’ bestseller list, and introduced us to a number of characters.
Among these were Joseph Cossano, whose AIG Financial Products lost nearly $100 billion, Howie Hubler who lost $9 billion on a single trade, and Merrill’s $300 million mezzanine CDO manager Wing Chau. In addition to the mountains of books that Lewis sold, Brad Pitt’s production company purchased the movie rights.
Assets in private equity and venture capital strategies have seen significant growth in recent years. In comparison, assets in the hedge fund industry have experienced slowing growth rates. Q2 2021 hedge fund letters, conferences and more Over the six years to the end of 2020, hedge fund assets increased at a compound annual growth rate Read More
Wing Chau back in the news
Today, Wing Chau is back in the news, and once again it’s a far sight short of positive. Perhaps you’ll remember that Mr. Chau sued Michael Lewis for his depiction in Lewis’ book, a suit that was later thrown out by a judge who called it baseless. Now he may find himself in court again, this time as a defendant rather than a plaintiff.
U.S. regulators accused Wing Chau of violating his fiduciary duty by accommodating requests from Magnetar Capital LLC in managing financial products linked to subprime mortgages today.
Harding Advisory’s veto rights
It is believed that Wing Chau and his firm, Harding Advisory LLC, failed to disclose that it gave veto rights over the selection and acquisition of mortgage-backed assets to Magnetar in a collateralized debt obligation known as Octans I in 2006. Magnetar bet against the CDO, which cost investors over $1 billion when it went belly-up in 2008. For Harding’s part, they received $4.5 million in the transaction.
“A collateral manager’s independent selection of assets is an important selling point to potential CDO investors,” George Canellos, co-director of the SEC’s enforcement division, said in a statement. “Investors had a right to know that Harding and Chau had chosen to accommodate the interests of others and abandon their own obligations to act in the best interests of the CDO they advised.”
SEC’s role in CDO debacle
Goldman Sachs Goup Inc (NYSE:GS) paid the SEC $550 million for its role in a similar CDO debacle after the commission claimed that it misled investors about a hedge fund’s role in selecting assets that were rolled into a CDO package.
The SEC’s filing today is seeking a investigation into what financial penalties Wing Chau and Harding should face in this brazen conflict of interests.
Steven Molo, a lawyer for Wing Chau, didn’t immediately return a phone call seeking comment when contacted by Bloomberg earlier today.