Feds begin criminal probe of Bear Stearns (BSC) hedge funds

The Wall Street Journal is reporting (subscription required) that federal prosecutors have started a criminal investigation into the collapse of two Bear Stearns (NYSE: BSC) hedge funds.

The investigation is reportedly in the early stages, with the FBI and Brooklyn U.S. Attorney involved. Experts say that it will be difficult to build a case against the funds because, unless there was clear fraud, hedge funds are regulated very lightly. The wealthy investors who qualify to invest are generally assumed to be able to take care of themselves.

Shares of Bear Stearns shrugged off the report, climbing 3.11% to close at $131.58.

Bear is also being looked at by the SEC. The company recently reported large write-downs on subprime losses and some believe that Bear, and other banks, may be using the write-downs to create "cookie jar" reserves that can be used to boost earnings in future periods, when the securities in question rebound.

There's a lot of scandal enveloping these banks right now -- starting with the fact their earnings are often nearly impossible to really understand. Unless you really think you can understand them, it may be be best to stay away.