SEC refocuses on adequate liquidity after collapse of mutual fund

New York

THE college seminar was drawing to a close in October and Martin Whitman was pondering the hits and misses in his long career at the top of Third Avenue Management, one of Wall Street's better-known value investment firms. He had had winners with his stock picks, but when it came to bonds, the results were mediocre.

"My problems have been in distressed," he said, referring to the bets that he had made on near-bankrupt companies. Those bets may have been bad. But they paled in comparison to the implosion in December of his firm's junk bond fund, which was loaded with high-risk bonds of distressed companies. Worried about the fund's viability, panicked investors demanded payouts that far exceeded the fund's liquid assets. And in a desperate move, the firm froze the fund, halting further redemptions.