The hedge fund helped major banks bundle derivatives called collateralize debt obligations that soured during the financial crisis.
Swiss bank UBS this week agreed to pay $50 million to settle charges it misrepresented bundled financial products that contributed to the financial crisis. On the same day, the Justice Department announced it was suing Bank of America for fraud related to $850 million in mortgage-backed securities.
But sources said the SEC is winding down its fraud investigations related to the crisis, the Journal said.
Magnetar helped banks pick contracts that were bundled to create financial products with various amounts of risk. It also bet in both directions, purchasing CDOs deemed worthy investments and betting others would fail.
Regulators had been focused on a $1.5 billion CDO called Norma CDO I, which was assembled by Merrill Lynch & Co., which stumbled during the financial crisis and was purchased by Bank of America.
Investigators were concerned Magnetar had so much influence selecting the securities for Norma CDO I, it was legally responsible for how it was represented and sold.
Like other hedge funds that made billions of dollars betting against mortgage-backed assets in advance of the crisis, Magnetar in 2006 and 2007 invested $1.5 billion to $1.8 billion in CDOs with most of the investment in the form of short sales that are bets the securities will decline in value.
The firm has said it did not control the process of creating the CDOs on which it bet.
Meanwhile, officials are quietly concluding there is not enough evidence to bring charges against Magnetar and, in turn, other hedge funds, the Journal said.
The investigation is not officially closed and decisions could be reversed if new evidences comes to light, the Journal reported.