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SEC probes hedge fund deals
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November 18, 1998: 3:24 a.m. ET
Report: regulators investigate Wall Street on dealings with hedge funds
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LONDON (CNNfn) - The Securities and Exchange Commission is investigating the dealings of about six Wall Street firms with hedge funds earlier this year, in a move that could pave the way for regulation of hedge fund activity.
In the wake of the bail-out of Long-Term Capital Management, the SEC is concerned that securities firms' dealings with hedge funds could threaten financial market stability, according to a report in London's Financial Times.
The investigation focuses on dealings between June and September, when LTCM was saved from collapse. The SEC has requested documentation of securities firms' dealings and has been visiting firms, according to the FT. Internal policies, credit exposure and credit limits during the period have all been scrutinized.
The investigation is the most intensive yet taken by U.S. regulators of Wall Street firms' relationship with hedge funds.
The paper says the moves could lead to regulation of the funds or closer scrutiny of securities' firms exposure to hedge funds.
The SEC's report is expected to be submitted to the president's working group on financial markets which is examining the reasons for the near-collapse of LTCM.
Wall Street firms have said the fact that LTCM did not disclose its position meant they didn't know that the fund's total exposure reached $200 billion, according to the Financial Times.
Several chief executives acknowledge that they concentrated too much on collateral held against trades and failed to take account of the bigger picture, the paper said. 
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