Bear Stearns Probe Abruptly Ended By SEC


On April 23, The Wall Street Journal reported that the Securities and Exchange Commission has refused a congressional request to disclose why the investigation into Bear Stearns was dropped. The purpose of that investigation was to determine if the firm harmed investors by improperly valuing complex debt securities.

In a letter dated April 2, the ranking member of the Senate Finance Committee, Senator Charles Grassley, requested details from the SEC about the circumstances surrounding the Bear Stearns probe. The SEC cited confidentiality in refusing to provide any details about its decision regarding the investigation. “The Commission does not disclose the existence or nonexistence of an investigation or information generated in any investigation unless made a matter of public record in proceedings brought before the Commission or the courts,” SEC chairman Christopher Cox explained.

At the request of Senator Grassley, the SEC’s inspector general is investigating the circumstances surrounding the dropped investigation. Senator Grassley and Senator Max Baucus, the chairman of the Senate Finance Committee, have said that they will continue to pursue this information from the SEC.

In 2005, an SEC branch office said that it planned to recommend that Bear Stearns be charged for the way it priced and valued about $63 million in CDOs. The unexplained reasons behind the SEC’s decision to drop the Bear Stearns investigation call into question the commitment of the current commissioners to the SEC mission to protect investors.