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SEC May Have Missed Chance to Contain Crisis: WSJ

Reuters
Monday, 10 Dec 2007 | 4:36 AM ET

U.S. authorities at the Securities and Exchange Commission and the New York Attorney General's office probed mortgage securities pricing as early as 2005, perhaps missing a chance to contain the credit crisis, the Wall Street Journal reported on Monday.

In 2005, the SEC and then-New York attorney general Eliot Spitzer's office launched separate investigations into whether Bear Stearns hurt investors by improperly valuing collateralized debt obligations and mortgage securities, the Journal reported, citing regulatory filings and people familiar with the matter.

According to the Journal, an SEC branch office had planned to recommend Bear Stearns be charged for improper pricing of about $63 million in mortgage securities it sold to a bank, while Spitzer's office was looking into how the firm priced $16 million of securities it sold to an institutional client.

Both the enforcement cases were dropped, the Journal reported. Representatives for Bear Stearns, the New York Attorney General's office and the SEC could not immediately be reached for comment early on Monday.

The Journal said the SEC and attorney general's office had declined to comment, and that Bear Stearns said it cooperated with both investigations.

This summer's collapse of two Bear Stearns hedge funds due to bad bets on subprime mortgages led to the ouster of the company's co-president and tarnished the image of a company known for bundling home loans into mortgage-backed bonds.

New York State prosecutors have just recently sent subpoenas to Wall Street firms related to the packaging and selling of debt tied to mortgage-backed securities, a person familiar with the matter said last week.

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