It also marks a broadening of the SEC’s investigation into the role of collateral managers, institutions that help select the assets included in CDOs.
NIR Capital Management, a Roslyn, New York firm run by Corey Ribotsky, served as manager for the security under scrutiny, a $1.5 billion CDO known as Norma. Neither Mr Ribotsky nor his attorney returned calls seeking comment.
Regulators are looking at whether collateral managers, which are supposed to serve CDO investors’ interests, fulfilled their obligations, these people say.
According to Rabobank’s lawsuit, Merrill allegedly created Norma as a “tailor-made way to bet against the mortgage-backed securities market”. The suit said: “Merrill Lynch hand-picked a beholden collateral manager that was willing to ignore its fiduciary duties to Norma’s investors by selecting Norma’s collateral pool at Merrill Lynch’s behest rather than on the basis of the rigorous independent analysis.”
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