The Securities and Exchange Commission is examining Wall Street brokerage firms and banks to make sure they aren’t hiding loses in the subprime mortgage meltdown, according to the Globe and Mail. The SEC wants to make certain that companies are calculating the value of the subprime mortgage assets in their own inventory, as well as assets held for customers such as hedge funds, according to people familiar with the matter. The SEC is concerned that firms may not be marking down their inventory as aggressively as assets held by clients. The issue is sensitive to the market. Large Wall Street firms have not reported any huge fallouts despite the big subprime losses and turmoil that has been going around the markets. Goldman Sachs and Merrill Lynch are the first firms targeted for checks, sources said. The checks may give some information about whether hedge funds themselves have reported their results accurately to investors, according to one person knowledgeable about them. Some firms “don’t come clean” about such losses in earnings reports, said David Trone, an analyst at Fox-Pitt Kelton. “You don’t know when people take losses; it’s buried.” Regulators are looking at marketing methods used by Wall Street divisions that make loans to customers such as hedge funds and money managers. The SEC’s market regulation division has been in contact with all big brokerage firms to ensure their risk management systems are up to speed in light of the quick deterioration in the subprime market. The staff of Money Management Executive ("MME") has prepared these capsule summaries based on reports published by the news sources to which they are attributed. Those news sources are not associated with MME, and have not prepared, sponsored, endorsed, or approved these summaries.
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