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S&P May Face Federal Charges

by Jacob Goldstein
Sep 26, 2011

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Last year, we partnered with ProPublica on stories about how Wall Street kept the housing bubble going. In the past week, there have been a couple newsworthy developments on this front.

1. The government is considering filing charges against Standard &Poor's based on its rating of a mortgage-backed bond issued in 2007.

The bond (a CDO) was structured at the request of a hedge fund called Magnetar, according to the FT. Magnetar profited by betting against the housing market.

We teamed up with ProPublica last year to profile Magnetar on This American Life. (You may remember the show tune "Bet Against the American Dream.")

ProPublica has more on the potential charges against S&P. Here's a statement from the company.

2. The SEC may ban certain deals like those done by Magnetar (and like Goldman's Abacus deal). ProPublica writes:

The Securities and Exchange Commission ... unveiled proposed rules to ban hedge funds and banks from assembling risky securities, marketing them to investors and then immediately betting against their own creations, reaping profits when they fail. The rule would also ban firms from setting up risky securities for the benefit of an undisclosed third party.

Here's the proposed SEC rule.

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