Legal News

Faced With Questions Over Dropped Bear Case, SEC Bites Back

By Dan Slater

For a commission that’s been accused of having lost its bite, the SEC bit back yesterday when it refused a congressional request to disclose why it dropped an investigation into whether Bear Stearns harmed investors by improperly valuing complex debt securities. Here’s the report from the WSJ’s Mike Siconolfi.

“The Commission does not disclose the existence or nonexistence of an investigation or information generated in any investigation unless made a matter of public record in proceedings brought before the Commission or the courts,” said SEC Chairman Chris Cox said in a letter to Sen. Charles Grassley (R-IA), the ranking member of the Senate Finance Committee.

Here’s the background: The WSJ reported in December that investigators, including the SEC, had scrapped two cases begun in 2005 against Bear involving CDOs, thinly traded investments that package pools of loans. In 2005, the SEC branch office said it planned to recommend that Bear be charged for the way it priced and valued about $63 million of CDOs.

In an April 2 letter, Sen. Grassley requested information from the SEC into the circumstances surrounding the dropped case. Bear has agreed to be acquired for $10 a share — a fire-sale price — by J.P. Morgan Chase.

The move, reports the WSJ, could lead to more back-and-forthing between the SEC and Congress. Legislators could argue that they previously have received more classified data from the SEC, and that the SEC investigations wouldn’t harm the parties involved because the investigations have already been dropped. Legislators could also argue that the SEC wouldn’t be releasing data to the public, but rather to Congress. Meantime, following a request by Grassley, the SEC’s inspector general is investigating circumstances related to the dropped Bear case.

Full post as published by Law Blog - WSJ.com on April 23, 2008 (boomark / email).