SEC Announces Fraud Charges Against Collateral Manager of CDO

The SEC announced charges against Wing F. Chau and his New Jersey-based advisory firm, Harding Advisory LLC, for misleading investors in a collateralized debt obligation ("CDO") and breaching their fiduciary duties. The SEC alleges that Mr. Chau and Harding Advisory compromised their independent judgment as collateral manager to a CDO named Octans I CDO Ltd. in order to accommodate trades requested by a third-party hedge fund firm whose interests were not necessarily aligned with the debt investors'. The Order further alleges that while assembling the collateral for Octans I, Chau and Harding allowed the hedge fund undisclosed influence over the selection process. The SEC found that Harding's own credit analysis of many of the selected assets was disregarded, and that the fund's influence over the portfolio was not disclosed in the materials used to solicit investors for the CDO. The SEC charges Mr. Chau and Harding with violating Securities Act Section 17(a) ("Fraudulent Interstate Transactions") and Investment Advisers Act Section 206 ("Prohibited Transactions by Investment Advisers").

See: SEC Order; SEC Press Release.