Projo Biz Blog

U.S. Sen. Jack Reed, D-RI, is pressing the U.S. Securities and Exchange Commission over its response to the subprime mortgage crisis, saying companies may have had too much leeway to conceal potential losses from complex financial transactions.

Although Congress ordered better disclosure on such arrangements after the Enron Corp. debacle, it appears that compliance with the 2002 law has been inadequate, Reed wriote in a letter to SEC Chairman Christopher Cox.

Reed, who chairs the Senate's securities subcommittee, said investors continue to be surprised by off-balance-sheet transactions and he called for the SEC to explain what it is doing to improve disclosure of transactions involving special purpose entities and structured investment vehicles.

In a related vein, given recent losses in the asset-backed-securities market, Reed asked if the SEC is looking to update its rules regarding disclosure to investors in such securities, and queried whether money-market mutual funds ought to invest in high-risk structured products.

The Rhode Island Democrat also called for the SEC to look back on reviews it conducted of mortgage lenders who have since reported significant losses due to risky "subprime" mortgages, focusing on whether the SEC appropriately identified risks being taken by such lenders.

---