[ by Larry Goldfarb ]

The story of Edward S. Steffelin is a tale of banker who was advising JPMorgan on the packaging and distribution of Credit Derivatives.  His former firm, GSC Capital Corporation, among other things, acted as a collateral manager on complex mortgage deals. It helped assemble and evaluate mortgage-backed securities and derivatives that were assembled into packages by banks like JPMorgan and then marketed to yield-hungry investors at the height of the real estate boom.

The S.E.C. charged that Mr. Steffelin allowed a large investor in mortgage-backed securities, a hedge fund called Magnetar Capital, to help choose the assets in the C.D.O. that JPMorgan structured and marketed. The commission further contended that Magnetar was betting against some of those securities and that Mr. Steffelin should have disclosed this to investors, but did not.  But on Friday, in a rare public about-face, the SEC asked Judge Miriam Goldman Cedarbaum of Federal District Court in New York to dismiss the charges against Mr. Steffelin with prejudice, meaning the case can’t be refiled.

Mr. Steffelin seemed to be at the wrong place at the wrong time.  The Magnetar case grabbed a lot of public attention with the public radio broadcast of "This American Life", which raised the profile of the deal and highlighted the inherent  conflicts of interest.  It is also notable that despite the pubic outrage, high-ranking officials at the big banks responsible for the mortgage crisis have not been brought up on individual fraud charges.

As the foreman of the jury that acquitted Mr. Stoker this summer told my Times colleague Peter Lattman, "Stoker structured a deal that his bosses told him to structure, so why didn’t they go after the higher-ups rather than a fall guy?"

Professor John C. Coffee Jr. of Columbia University pointed out: "Very few high-ranking individuals at any institution have been charged.  Take the Goldman Sachs case.  It was strong.  But the highest-ranking individual charged was the Fabulous Fab, and he was the equivalent of a trainee sergeant.  This is part of a pattern."  The SEC points to more than a hundred cases related to the financial crisis that have brought in about $2.2 billion in penalties. They include Angelo Mozilo, the co-founder of the mortgage lender Countrywide Financial, who paid $67.5 million to settle SEC fraud charges, and senior officers of Fannie Mae and Freddie Mac, the government-backed mortgage companies. But otherwise, few if any of the individual defendants would qualify as boldface names.

For more information, please read [NYT, 11/17/12].