AMERICA’S Securities and Exchange Commission (SEC) is launching an inquiry into Amaranth Advisors, the hedge fund that nearly collapsed last week.

The SEC said that it would examine the role of banks in offering limitless credit and whether Amaranth misled investors. Amaranth imploded losing investors $6 billion (£3.2 billion) after bets on gas futures went awry.

The SEC has limited authority over such funds, but it does monitor how they represent their operations to investors and can investigate suspected cases of fraud.

American authorities are increasingly concerned over the actions of hedge funds, which are largely unregulated around the world. The FBI also weighed in yesterday, saying that the influence of hedge funds was luring small investors into risky situations.

Timothy Geithner, president of the the New York Federal Reserve Bank, has also given warning that the multibillion-dollar derivatives market may be concentrating risk instead of spreading it and may make markets more vulnerable.

Mr Geithner said that in the 12 months since the bank asked funds to eradicate unconfirmed trades of over-the-counter credit derivatives, the credit derivatives market had expanded by 50 per cent, while the problem of unconfirmed trades had decreased by 75 per cent.

Amaranth, the biggest hedge fund to have serious difficulties in recent years, was overwhelmed last week after making trading losses of $560 million on one day, September 14.

The fund’s problems have caused a stir in America because they have affected pension funds as well as rich individuals. The pension fund of 3M, the maker of Post-It notes, said that it had invested millions of dollars in Amaranth.

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