Bear Stearns Accused of Swap Market Manipulation

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Hedge funds are accusing Bear Stearns of manipulating the credit default swap market, according to the Wall Street Journal. Basically, Bear Stearns stands accused of bailing out trouble subprime loans in order to avoid having to pay out on credit default swaps it sold to hedge funds. For its part, Bear Stearns denies that it is making decisions about loans based on its swap positions.
The credit default swap market is a relatively young one that has been plagued by suspicions of insider trading and market manipulation. As we discussed here in April, anti-fraud rules familiar from the stock market apply to the credit default swap market but there appears to be no government agency charged with policing the market. In this case, it appears that the matter has fallen to the International Swaps and Derivatives Association, an industry group that represents the various players in the swap market.
It's not clear if anything Bear Stearns is accused of doing violates any rules. The hedge fund accusations of market manipulation appear to be on the order of claims of unsportsmanlike conduct.

The Sure Bet Turns Bad
[Wall Street Journal]

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