SEC may probe more hedge funds

US Securities and Exchange Commission Chairman Christopher Cox said the agency may expand its scrutiny of hedge funds for insider trading by asking more firms about their relationships with public companies.

The SEC has asked about 25 hedge funds in the New York area to list clients and workers who serve as officers and directors of publicly traded companies.

It is seeking the same information for any relatives of employees and clients who hold such posts.

"It is styled as a pilot and therefore, assuming that things go well, you should expect more,'' Cox told reporters in Washington today. The SEC wants to make sure it has ``procedures in place and oversight at the firms'' to prevent insider trading before it happens, he said.

Unusually high trading in shares and options before announced takeovers, including deals involving TXU Corp. and First Data Corp., has intensified scrutiny of how information may spread to hedge funds.

The new questions are being asked by the SEC's inspections office, which referred 223 cases of potential securities violations to the agency's enforcement division in the latest fiscal year.

``We know there is a risk of information leakage at brokerage firms, so we ask about the relationship between traders and brokers,'' Mark Schonfeld, who oversees the SEC's New York office, said in an interview today. ``We have added some questions that we weren't asking before that go to the heart of what is the risk at this firm for insider trading.''

The SEC can inspect hedge funds and demand detailed information about their investments and clients when the manager is registered with the agency as an investment adviser.

About 1,980 hedge-fund advisers have voluntarily signed up, a 21 percent drop from June 2006, when the U.S. Court of Appeals in Washington rejected the regulator's attempts to require registration.