The big banks must not be feeling very loved right now. The New York Attorney General is investigating their handling of subprime loans, and spent its summer issuing subpoenas to banks like Merrill Lynch & Co. (NYSE: MER), Morgan Stanley (NYSE: MS) and Deutsche Bank AG (NYSE: DB).
Now the Securities and Exchange Commission is investigating whether banks and the hedge funds they invest in are colluding to share inside information, such as the specifics of a given fund's strategies, to gain insight into the future of the market.
Little information has been made available on the exact nature of the SEC's investigations. Because hedge funds are private, they are not required to publicly disclose SEC investigations the way the way that a public company would in the face of a formal inquiry.
The hedge fund industry has grown extremely rapidly over the past few years to its current size of $1.9 trillion, and regulators probably have a fair amount of catching up to do in terms of investment malfeasance.
SEC investigates possible collusion between hedge funds and banks
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