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SEC checking for hidden subprime losses at Wall Street firms

SEC checking for hidden subprime losses at Wall Street firms

The Securities and Exchange Commission is looking at the finances of leading Wall Street firms to see if they are hiding losses from the collapse of the subprime-mortgage market. The normally routine checks come at a sensitive time, as none of the firms had reported big subprime losses as of their last earnings reports. "No one really knows how to price asset-backed securities and CDOs and that's a real problem in the market now," said Ann Rutledge, principal of R&R Consulting.

Securities regulators are checking the books at top Wall Street brokerage firms and banks to make sure they aren't hiding losses in the subprime-mortgage meltdown, said people familiar with the inquiry.

The SEC is looking into whether Wall Street brokers are using consistent methods to calculate the value of subprime-mortgage assets in their own inventory, as well as assets held for customers such as hedge funds, the same people said. The concern: that the firms may not be marking down their inventory as aggressively as assets held by clients.

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