The SEC is looking at some of the JP Morgan Chase CDOs.
The ruse of diffusing responsibility, and of having the party most clearly liable, the CDO manager, be an economically weak party (CDO managers typically were very small shops, sometimes with as few as a couple of professional staff), means these cases are hard to prove, even if the nature of the chicanery seems obvious now.
The JP Morgan transaction was called “Squared” because it was a CDO squared, meaning a CDO made from (typically) the riskier tranches of unsold CDOs, with a bit of other types of credit exposures thrown into the mix to make it look slightly less unsavory. The rather peculiar thing about Squared is it consisted heavily of exposures from other Magnetar CDOs, which strongly suggests Magnetar had a hand in this deal (as in dealers were choking on the unsold exposures, and Magnetar needed them placed to launch new first gen CDOs).
But Mr. Market does seem to be taking this announcement seriously; the averages started moving down when this story broke today, and Bloomberg attributes the decline to this suit. Although JP Morgan was much less heavily involved in synthetic and heavily synthetic CDOs than Goldman, if the SEC makes a case that sticks against a Magnetar trade, every major firm in the subprime business will be at risk. This could get interesting, in a good way for a change.