Propublica reports:
In the past several days, a legal back and forth has emerged between Merrill Lynch and the Dutch bank known as Rabobank, which is accusing Merrill of essentially doing the same kind of deal Goldman is being sued for (i.e., failing to disclose to investors that a hedge fund was involved in the creation of a risky CDO that the hedge fund intended to bet against).
Rabobank sued Merrill Lynch in state court in Manhattan last year over a deal called Norma, a $1.5 billion CDO that went bust within a year of its creation in 2007. Norma -- which we wrote about [3] [3] in our original story -- was one of among 30 CDOs [4] [4] Magnetar helped create in cooperation with at least nine banks between 2006 and 2007. As with Norma, the deals were packed with risky assets, which Magnetar was then able to bet against. (Magnetar denies these assertions and says it never took a position on the market.)
Hours after the SEC's suit was announced last Friday, the lawyer representing Rabobank sent a letter to Judge Bernard Fried, noting similarities [5] [5] to what Goldman allegedly did:
"The SEC charges bear directly on the sufficiency of Rabobank's complaint as Rabobank has alleged that Merrill Lynch engaged in precisely the same type of fraudulent conduct in the structuring and marketing of Norma through having failed to disclose that Norma's collateral pool had been selected to benefit short positions taken by Magnetar Capital LLC ('Magnetar'), the equity investor in Norma."
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