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The Securities and Exchange Commission may be taking a look into the subprime mess that has hobbled a pair of Bear Stearns (BSC - Cramer's Take - Stockpickr) hedge funds. According to a report by Business Week, citing people familiar with the situation, the SEC has launched a preliminary probe into what led the Bear Stearns' High-Grade Structured Credit Strategies Enhanced Leveraged Fund to nearly meet its end. The fund, along with the related High-Grade Structured Credit Strategies Fund, are run by Ralph Cioffi and invest in collateralized debt obligations -- mortgage securities that have been structured as bonds and pooled for resale to investors. The SEC will be reviewing how Bear Stearns realized it would have to restate the losses in the funds to amounts much wider than it had previously reported. The funds have been hit with sizable losses and margin calls from creditors over the past several weeks due to the volatility in the mortgage market, primarily related to the subprime turmoil that hurt Wall Street earlier in the year. Nothing may come of the inquiry and no official papers have been issued, the Business Week article notes. Bear Stearns stepped up to provide $3.2 billion in order to bolster the High-Grade Structured Credit Strategies fund, but not the Enhanced Leveraged fund. The funds are being overwhelmed by losses on esoteric securities including bonds, loans and other derivatives tied to subprime mortgages packed into collateralized debt obligations. Adding to the Bear Stearns woes were comments from Merrill Lynch analyst Guy Moszkowski, who speculated that the company may have to lend a hand to the more leveraged fund, which owes about $7 billion to its creditors. Bear Stearns has been deeply mired in the subprime debt business, which has dragged down its share price over the past few months even more than its banking peers. The company's mortgage platform is the second-largest U.S. mortgage originator. On Monday, Bear Stearns tumbled 4.7% to $139.10 in trading that was four times heavier than normal.
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