On November 14, 2007, Secretary Galvin charged Bear Stearns with engaging in improper trading activities at two collapsed hedge funds.
Filed on behalf of Massachusetts investors in the funds, the suit charges Bear Stearns Asset Management traded mortgage-backed securities, collateralized debt obligations and other securities from its own account with hedge funds it advised without notifying the client funds independent directors as required, Galvin’s office said in a press release.
The rules were designed to control conflicts of interest, but Bear Stearns Asset Management failed to train or oversee people who were supposed to obtain approvals from fund directors, Galvin claimed, violating state securities rules.
Losses at the two mortgage-related funds, the Bear Stearns High-Grade Structured Credit Strategies Fund and High-Grade Structured Enhanced Leverage Fund, cost investors $1.6 billion.