SEC probes of sub-prime crisis expand

The Securities and Exchange Commission’s docket of probes stemming from the sub-prime mortgage crisis has grown at least 40% since January amid mounting investor losses and the collapse of Bear Stearns Cos., a person familiar with the agency’s caseload said.

The SEC has more than 50 open inquiries relating to the credit-market turmoil, compared with about three dozen in January, the person said, declining to be identified because the cases aren’t public. SEC lawyers are examining suspected fraud, market manipulation and breaches of fiduciary duty.

Global credit markets froze last year amid rising defaults on mortgages to the least creditworthy borrowers, triggering almost $400 billion in losses and write-downs at the world’s biggest banks and securities firms.

Still, the surging caseload may not lead to a wave of civil and criminal charges, as many inquiries are in their early stages and hinge on accounting questions.

“The government is doing what it ought to be doing, which is looking,” said David Becker, a former SEC general counsel now in private practice at Cleary Gottlieb Steen & Hamilton in Washington. While the losses are severe, “what we don’t know is whether there is any fraud that took place.”

Last week, the SEC teamed up with the U.S. attorney’s office in Brooklyn, N.Y., to file the first federal charges over Wall Street’s handling of the sub-prime crisis, hauling former Bear Stearns hedge fund managers Ralph Cioffi and Matthew Tannin into court in handcuffs. The pair face criminal allegations that they misled clients about pending losses and redemptions before two funds collapsed under the weight of bad bets on mortgage-backed securities. They are free on bond and deny wrongdoing.

The SEC spokesman declined to comment on its caseload.