SEC official says more subprime fraud could surface

WASHINGTON (Reuters) - The U.S. Securities and Exchange Commission's top enforcement official said on Wednesday that it's still too early to tell whether the current market turmoil involves widespread securities violations or simply bad business decisions.

SEC enforcement director Linda Thomsen also said more fraudulent activity tied to the subprime mortgage crisis might emerge as financial players grapple with a tough business environment.

"Once things start going south, people start behaving badly," Thomsen said at a U.S. Chamber of Commerce event on capital markets competitiveness.

"People try to cover up what they're finding and justifying things in their own minds."

Thomsen said the SEC has about three dozen subprime-related investigations open that involve a broad spectrum of financial players.

She said the investor protection agency is probing subprime mortgage lenders, investment backs that created asset-backed securities involving subprime loans, retail and institutional sellers of those complex products, credit raters, home builders and insurers, among others.

"We may continue to see these issues for some time," Thomsen said.

The SEC also is cooperating with the FBI's criminal probe of the mortgage lending industry, which has grown to 17 firms and involves large companies.

Law enforcement authorities have said the largest U.S. mortgage lender, Countrywide Financial Corp CFC.N, is under FBI investigation. Countrywide did not immediately return a call on Wednesday seeking comment.

Major investment banks Goldman Sachs (GS.N), Morgan Stanley (MS.N) and Bear Stearns Cos BSC.N have each said the government had asked them for information.

The FBI has said it could take years for its investigations to conclude and Thomsen said it would take "some time" for the SEC to also wrap up its subprime-related investigations.

"All of this stuff is sufficiently complicated," she said.

(Reporting by Karey Wutkowski; editing by Carol Bishopric)