FBI may probe funds and banks

Hedge funds and private-equity firms could be dragged into the FBI fraud investigation of the US mortgage meltdown, agency director Robert Mueller has warned.

Addressing the American Bar Association a day after telling Congress that 19 companies are now being investigated, he said investment banks were also potentially in the frame.

"These investigations may well lead to other instances of fraud, from investment banks and private-equity firms to hedge funds," Mueller said. "We do not take these investigations lightly."

The FBI is looking into potential insider trading by investment managers at hedge funds and private-equity firms.

It is also reviewing whether hedge funds improperly hid losses on securities tied to subprime loans.

Mueller said the bureau is stretched for resources to handle the onslaught of cases.