SEC Investigating Securitization of Subprime Loans

The Securities and Exchange Commission is investigating potential securities fraud with respect to the securitization and sale of subprime loans, SEC Chairman Christopher Cox told Congress Tuesday, Dow Jones reports.

So far, the agency has opened 12 investigations, all similar to the failure of two Bear Stearns hedge funds that had invested in collateralized debt obligations that included subprime loans.

In an earlier interview, Cox said the SEC is investigating what led to the meltdown of the two Bear Stearns hedge funds.

Because collateralized debt obligations are illiquid, sellers use models to price CDOs based on credit agency ratings.