The SEC is examining at least 12 banks and brokerages, including JPMorgan Chase & Co. and Citigroup Inc., for possible bond price manipulation, Bloomberg News reported Dec. 5, citing "people familiar with the matter."
The question for the regulator is whether the brokers gave inflated prices that hedge funds could use to make their investments look better. The tactic might have been of particular use with mortgage securities and other thinly traded bonds that require third-party estimates for investors to determine their value. Inflated prices would improve a money manager's portfolio, and that hedge fund in turn might be a bank's or brokerage's valuable trading client, according to Bloomberg.
