Probe of Bear Stearns Hedge Funds Is Broadened

The U.S. Attorney's Office in Brooklyn has ramped up its investigation into the collapse of two hedge funds that Bear Stearns managed, CNBC has learned.

Bear Stearns is expected to meet with investigators from the U.S. Attorney's Office in mid-January to tell their side of the story.

Investigators are looking into conference calls between managers and investors that could provide additional clues as to whether the investment bank made proper disclosures to investors. Representatives from the office are actively interviewing investors to find out what they were told by Bear.

The two funds in question are the Bear Stearns High Grade Structured Credit Strategies Fund and its sister fund, the Bear Stearns Enhanced High Grade Structured Credit Fund. Both funds sought protection from creditors over the summer after investments in risky collateralized debt obligations backed by subprime mortgages went sour.

Bad subprime bets and related write-downs led to an $854 million fourth-quarter loss at Bear Stearns, the first in the history of Wall Street's fifth-largest investment bank.

An arbitration claim has already been filed against Bear with the National Association of Securities Dealers on behalf of a 73-year-old unnamed investor. The Securities and Exchange Commission is not involved in the probe.

The targets of the investigation appear to be fund managers Ralph Cioffi and Matthew Tannin, as well as Bear Stearns itself.

Bear Stearns has indicated it will comply fully with the investigation.