Massachusetts Secretary of the Commonwealth William Galvin filed a civil complaint against Bear Stearns on Wednesday, charging the firm with improperly trading mortgage-backed and collateralized debt obligation securities from its own account with the two failed hedge funds. Galvin said the trading began in 2004 and continued through this year.
Galvin said the funds’ own prospectuses precluded them from trading in such instruments. In addition, federal and state securities laws require funds to notify their directors when they trade in such instruments.
The secretary of the commonwealth also said that the directors of the Bear Stearns High Grade Fund didn’t honor his subpoenas or make themselves available for questioning. Galvin’s office plans to fine Bear Stearns.