[ by Melanie Gretchen ]

The SEC has dropped its civil lawsuit against a former executive of GSC Capital Corp, according to a court filing Friday in U.S. District Court in Manhattan.  Edward Steffelin, a former managing director, was accused of negligence for helping mislead investors on a JPMorgan Chase & Co mortgage-bond deal.

"Our duty in all cases is to achieve a just and appropriate outcome.  Our decision here appropriately reflects information that came to light as the litigation progressed." -- John Nester, SEC spokesman.

SEC Findings and Allegations. Mr. Steffelin was the sole individual charged when JPMorgan agreed to a $153.6 million civil settlement last year.  At the time, Mr. Steffelin had been in charge of a team at GSC that selected the investment portfolio for a $1.1 billion collateralized debt obligation called Squared CDO 2007-1, which JPMorgan structured.

The SEC alleged that:

• Mr. Steffelin knew the hedge fund Magnetar Capital LLC helped choose some of the assets being included in the CDO
• Magnetar had a bet against the securities
• Steffelin failed to ensure marketing materials for the deal disclosed the involvement of Magnetar

What came to light. We don't know what evidence Mr. Steffelin produce to prompt the SEC to drop the case.  However, in May a lawyer for Steffelin said the SEC staff notified him in May that they would recommend to the SEC's commissioners to dismiss the case.  Indeed, the SEC came through.

"Often times in that situation the people on other side just ignore it.  But to their credit, they kept an open mind."  -- Alex Lipman, partner at Nixon Peabody LLP.

The case: U.S. Securities and Exchange Commission v. Steffelin, U.S. District court, Southern District of New York, No. 11-cv-04204.

For further details, go to [Fidelity, 11/16/12].