There's been some grumbling on Wall Street as to why Goldman Sachs was prosecuted for its ABACUS CDO deals while other firms that engaged in similar trades have not.

To be sure, the SEC and the DOJ are looking into other deals, and we may yet see some charges against specific firms. We may also see a global settlement that targets a group for similar practices. One set of deals under scrutiny is a series of trades Merrill Lynch constructed for hedge fund Magnetar. The nub of the controversy concerns whether Merrill Lynch provided adequate disclosure for customers about the role of Magnetar and whether it influenced the collateral manager to buy securities that it thought had a high likelihood of defaulting.

A recent lawsuit against Merrill Lynch over similar issues put it well. As quoted by the Financial Times: Merrill allegedly created Norma as a "tailor-made way to bet against the mortgage-backed securities market. Merrill Lynch hand-picked a beholden collateral manager that was willing to ignore its fiduciary duties to Norma's investors by selecting Norma's collateral pool at Merrill Lynch's behest rather than on the basis of the rigorous independent analysis."

The collateral manager for the deal, NIP Capital Management, has not commented. It is one of several that has found itself under scrutiny. The SEC sued ICP Asset Management last year for various frauds in the way it managed collateral for CDOs.

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Did CDO created for Magnetar have better disclosure?