Mass. Sec. of State charges Bear Stearns

Massachusetts Secretary of State William F. Galvin today charged a unit of Bear Stearns Cos. 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.

Galvin also said directors of one fund, based in the Cayman Islands, declined to make themselves available for questioning. They did not honor department subpoenas, he said in a statement, "calling into question the efficacy of their independent oversight into the trading operations of these hedge funds.''
(By Ross Kerber, Globe staff)