Investment advisory firm, Harding Advisory, LLC, and its owner were charged recently by the SEC for misleading investors and breaching their fiduciary duties. According to a recent press release, the SEC alleged Harding "compromised their independent judgment as collateral manager to a CDO named Octans I CDO Ltd." The firm and owner allegedly did so for requested trades of a third party hedge firm, Magnetar Capital LLC. The SEC asserted in their press release that these trades "were not necessarily aligned with the debt investors". One example provided by the SEC of going against the interests of the debt investors is Harding giving the hedge firm rights during the process of choosing and obtaining a portfolio of subprime mortgage-backed assets. These assets were collateral for debt instruments issued to investors in the CDO and the investors were not told of the rights given to the hedge firm, according to the press release. Another allegation by the SEC is that, in favor of Magnetar's preferences, Harding's own credit analyses were disregarded. Also asserted is that Magnetar's role in selecting assets of the CDO was not disclosed in any of the marketing material produced to potential investors.
The SEC charged Harding with violating Section 17(a) of the Securities Act of 1933 and Section 206 of the Investment Advisers Act of 1940. The owner of Harding, Wing F. Chau was charged under those sections as well as being charged with aiding and abetting and causing Harding's violations.