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GLG Partners L.P. and its former holding company GLG Partners Inc. in London agreed to pay nearly $9 million to settle charges that internal controls failures led to the overvaluation of a fund’s assets and inflated fee revenue for the firms. According to the SEC, from November 2008 to November 2010, GLG’s internal control failures caused the overvaluation of the fund’s 25 percent private equity stake in an emerging market coal mining company. The overvaluation resulted in inflated fees to the GLG firms and the overstatement of assets under management in the holding company’s filings with the SEC. In addition to the fine, the SEC will be working to make sure investors harmed in the matter are repaid, and have ordered GLG to fix internal controls that allowed for this to happen.

In North Carolina, the regulator charged the managing partners of NIR Capital Management compromised their independent judgment and allowing a third party with its own interests to influence the portfolio selection process of a collateralized debt obligation (CDO) being offered to investors. The investment managers have agreed to collectively pay more than $472,000 and exit the securities industry to settle the SEC’s charges.

According to the SEC, IR Capital Management LLC was solely selecting the assets for Norma CDO I Ltd. as the designated collateral manager. However, NIR’s Scott H. Shannon accepted assets chosen by hedge fund firm Magnetar Capital LLC for the Norma CDO’s portfolio, and Joseph G. Parish III allowed Magnetar to influence the selection of some other assets. Magnetar bought the equity in the CDO but also placed short bets on collateral in the CDO and therefore had an interest not necessarily aligned with potential long-term debt investors that relied on the CDO and its collateral to perform well. Through a separate set of charges, SEC filed against Merrill Lynch, which structured and marketed the Norma CDO.

Merrill Lynch agreed to pay $131.8 million to settle the SEC’s charges. The charges stated that Merrill Lynch failed to inform investors that hedge fund firm Magnetar Capital LLC had a third-party role and exercised significant influence over the selection of collateral for the CDOs entitled Octans I CDO Ltd. and Norma CDO I Ltd. Magnetar bought the equity in the CDOs and its interests were not necessarily aligned with those of other investors because it hedged its equity positions by shorting against the CDOs.

According to the SEC’s order, Merrill Lynch engaged in the misconduct in 2006 and 2007, when its CDO group was a leading arranger of structured product CDOs. After four Merrill Lynch representatives met with a Magnetar representative in May 2006, an internal email explained the arrangement as “we pick mutually agreeable [collateral] managers to work with, Magnetar plays a significant role in the structure and composition of the portfolio ... and in return [Magnetar] retain[s] the equity class and we distribute the debt.”