US Securities and Exchange Commission and federal prosecutors are already probing the collapse of the Bear Stearns funds.

Citing sources the paper said Massachusetts securities regulators are investigating whether the bank traded mortgage-backed securities for its own account with the hedge funds without notifying the fund''s independent directors in advance.

Some Massachusetts residents have invested in the Bear Stearns `High-Grade Structured Credit Strategies Fund'' and the `High-Grade Structured Credit Enhanced Leverage Fund'', both of which collapsed last summer leaving losses of $1.6 billion, the paper said.

Regulators are also investigating whether some troubled securities traded by the bank were offloaded into the hedge funds and whether they were priced properly, the report said.