NEW YORK The U.S. Securities and Exchange
Commission has partially overturned a ruling finding an
investment adviser featured in the best-seller “The Big Short”
liable in a case stemming from the 2008-09 financial crisis, but
it increased how much he owes.
The SEC on Friday partially reversed an administrative
judge’s 2015 decision finding that Wing Chau and his firm,
Harding Advisory LLC, committed fraud in connection with two
complex investment products linked to mortgages.
But the SEC took a different approach than the judge in
calculating how much the parties must forfeit in ill-gotten
gains, resulting in Chau and Harding being ordered to pay a
combined nearly $6.8 million, up from $3.04 million.
Alex Lipman, Chau’s lawyer, on Monday said he was pleased
the SEC dismissed the “most significant aspect of the case.”
Lipman said he plans to challenge the remainder of the decision
before a federal appeals court.
An SEC spokeswoman declined to comment.
Chau, a bond manager who unsuccessfully sued author Michael
Lewis over his depiction in the financial crisis-focused “The
Big Short,” was charged along with Morristown, New Jersey-based
Harding by the SEC’s enforcement division in 2013.
The case centered on two collaterized debt obligations,
Octans I CDO Ltd and Norma CDO I, a type of investment vehicle
comprised of hundreds of mortgage-backed securities, a
financial product that was at the heart of the crisis.
The SEC accused Chau and Harding, which served as Octans’
collateral manager, of allowing hedge fund Magnetar Capital LLC
undisclosed influence over selecting collateral for the $1.5
The SEC alleged Magnetar played a role in the deal despite
its strategy of taking short positions on mortgage-backed
securities in CDOs, including ones it was investing in, as it
was in Octans I.
The agency also accused Chau and Harding of committing fraud
by acquiring Norma bonds as a favor to Merrill Lynch, which
marketed the CDO, and Magnetar to include in two other CDOs that
Harding managed to their investors’ detriment.
On appeal, the SEC dismissed claims regarding Octans, saying
the “evidence suggests that Magnetar left it to Harding to
decide which and how many bonds to include,” and that Magnetar
was actually net long in it despite “modest” short positions.
But with regards to Norma, the SEC ruled that the record
showed Chau and Harding bought Norma bonds as a favor to Merrill
and Magnetar and allocated them to two CDOs “without regard for
the creditworthiness of the assets.”
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