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SEC drops lawsuit against executive in financial crisis case

By Nate Raymond

(Reuters) - The U.S. Securities and Exchange Commission has dropped its civil lawsuit against a former executive of GSC Capital Corp who was accused of negligence for helping mislead investors on a JPMorgan Chase & Co mortgage-bond deal.

The SEC's decision to drop the case against Edward Steffelin, a former managing director at GSC Capital Corp, was disclosed in a court filing Friday in U.S. District Court in Manhattan.

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

Steffelin was the sole individual charged when JPMorgan agreed to a $153.6 million civil settlement last year and one of the few people hit with a SEC lawsuit related to pre-recession mortgage investments gone bad.

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 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, the SEC said.

The SEC accused Steffelin of failing to ensure marketing materials for the deal disclosed the involvement of Magnetar. Steffelin denied wrongdoing.

Alex Lipman, 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. The SEC decided to drop the case after exchanging evidence, Lipman said.

"Often times in that situation the people on other side just ignore it," he said. "But to their credit, they kept an open mind."

The dismissal of the lawsuit against Steffelin came as the SEC announced JPMorgan Chase had agreed to another settlement, a $296.9 million deal stemming from its role putting together mortgage investments.

No individuals were charged Friday, and few people have faced litigation in the SEC's financial crisis cases against the major banks.

The SEC also lost its first financial-crisis trial against an individual when a jury ruled in favor of former Citigroup Inc mid-tier executive Brian Stoker.

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

(Reporting by Nate Raymond in New York; Editing by Lisa Shumaker)

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