New York- A group of hedge funds is telling the U.S. Securities and Exchange Commission to be on the lookout for manipulation of bonds backed by subprime mortgages.
Paulson & Co., a hedge fund based in New York, told the SEC that investment banks might pay inflated prices to buy bad loans that are collateral for bonds, said Michael Waldorf, a senior vice president at the fund.
Removing delinquent loans may prevent bonds from defaulting and leading to losses in the banks’ investments in derivatives, he said. Waldorf declined to name the other hedge funds that had warned the SEC.
“We hope you will clarify the application of the anti-manipulation provisions of the federal securities laws to credit default swaps in order to assure market participants that no one will be allowed to engage in manipulative practices,” said a letter sent to the SEC. Bloomberg News obtained a copy.
