Redwood Trust Says SEC Sought Information on Acacia CDO Trading, Valuation
Redwood Trust Inc., the jumbo- mortgage specialist that in April sponsored the first private securitization of new U.S. home loans in two years, said regulators demanded information about its Acacia collateralized- debt-obligation business.
The Securities and Exchange Commission sent an order in May asking for information on topics including “trading practices and valuation policies” related to Acacia, Mill Valley, California-based Redwood said today in a filing with the agency. The company has already responded.
The “order from the SEC indicates that it should not be construed as an indication by the SEC or its staff that any violations of law have occurred,” the company said. If the request were to lead the regulator to bring a complaint, and the company couldn’t successfully defend it, losses “could have a material adverse effect” on earnings, the firm wrote.
Company spokesman Mike McMahon didn’t immediately return a telephone message seeking comment.
The SEC has said it is scrutinizing all levels of the CDO market, which in 2008 helped create the worst financial crisis since the Great Depression. Last month, Goldman Sachs Group Inc. agreed to pay $550 million in the largest settlement since the crisis to focus on sales of the instruments. The New York-based bank didn’t admit or deny wrongdoing.
CDOs are used to package assets such as mortgage bonds and buyout loans into new securities with varying risks.
In April, Redwood teamed with Citigroup Inc. to package $237.8 million of large mortgages into bonds. New York-based Citigroup originated the loans and underwrote the securities, which weren’t CDOs. Redwood retained the lowest-ranking slices.
The company today also said second-quarter net income rose to $29 million, or 35 cents a share, from $7 million, or 10 cents, in the same period a year earlier.