Bear Stearns (BSC) may have a lot of explaining to do about a big restatement of losses at one of its troubled hedge fundsand not just to its investors, BusinessWeek reports.
BusinessWeek has learned that the Securities & Exchange Commission recently opened a preliminary inquiry into the near-collapse of Bear Stearns’ High-Grade Structured Credit Strategies Enhanced Leveraged Fund.
People familiar with the inquiry say regulators are interested in learning how the Wall Street investment firm came to dramatically restate the April losses for the 10-month-old fund, which invested heavily in securities backed by subprime mortgages, or home loans to consumers with shaky credit histories.
Bear Stearns told investors 15th May that the Enhanced Leveraged fundwhich raised $642 million last summerhad lost 6.5 percent in April. But three weeks after that estimate, the investment firm shocked investors on 7th June, telling them that the fund’s actual April loss was 18.97 percent, or 23 percent for the year.
The restatement, and the prospect that other hedge funds could face the same situation, has sparked widespread concern on Wall Street about the subprime housing market and the opacity of prices for assets underlying many of the securitized mortgage bonds that have flooded the market in recent years.