A federal judge dismissed part of the SEC's lawsuit against the only individual charged in the JPMorgan case that led to a $153.6mn settlement of civil fraud charges. Edward Steffelin did not engage in a "fraud or deceit" upon investors in a collateralized debt obligation, Squared CDO 2007-1, that JPMorgan had sold in early 2007 to clients, U.S. District Judge Miriam Goldman Cedarbaum in Manhattan ruled. Steffelin then worked at GSC Capital Corp, a now-bankrupt firm that helped put the CDO together. The  SEC had contended that marketing materials failed to reveal that the Magnetar Capital hedge fund, where Steffelin was pursuing a job, helped choose securities for the CDO and was betting they would lose value. Evidence in the case suggested that JPMorgan bankers pushed the CDO onto clients so it could move toxic mortgage debt off its books. Cedarbaum refused to dismiss other SEC charges against Steffelin in the negligence case, including one accusing him of hiding the CDO's risks. According to a transcript of the oral argument, Cedarbaum said it would have been a "big stretch" to conclude that Steffelin had a fiduciary duty to investors who bought the CDO, and should thus face the SEC charge that he defrauded them. Steffelin has argued that he had no reason to believe the CDO offering documents had problems, and that "nothing was omitted" and "no one was defrauded." [Reuters, 10/27/11]