SEC Examining Funds' Subprime Holdings

The Securities and Exchange Commission has contacted the 25 largest mutual fund companies in the nation to inquire about their holdings of mortgage-backed securities, according to Douglas Scheidt, associate director in the SEC investment management division, Bloomberg reports.

“We have talked to several about whether they are having difficulties in valuing [subprime debt and how they are dealing with] significant redemptions,” Scheidt said. “If they sell off the more liquid securities to satisfy redemption requests, then the valuation of the remaining portfolio becomes even more critical.”

Barry Barbash, former head of the SEC’s division of investment management and now a partner with Willkie Farr & Gallagher, explained that should instruments have been overvalued, redemptions would then be inflated.