Claris Law Legal Blogging Community

Editor: Debra G. Speyer, Esq.
Profession: Attorney

Category: Fraud in the News

The Securities and Exchange Commission has opened 12 investigations regarding securities fraud in the packaging and sale of securitized subprime mortgages. Recently two of Bear Stearns Companies hedge funds nearly collapsed due to investments in collateralized debt obligations that included subprime loans. Bear Stearns agreed to provide up to $3.2 billion in financing for one of the funds after investment bankers discovered that the underlying value of the funds were much less than the had thought them to be.

The valuation of these type of securitized products is going to be a big problem for the market going forward as these investments have not been valued correctly. When they begin to tumble, they will fall much lower than expected because they have artificially high valuations as it is difficult to properly value these investments.