US prosecutors are investigating one of Wall Street's darkest markets, focusing on hedge funds suspected of inflating the value of debt securities in their portfolios to juice the fees they collect. Having prosecuted traders who lied to customers about bond prices, the government is now scrutinising hedge funds that allegedly solicited bogus price quotes from brokers, according to three people familiar with the matter who asked not to be identified. Such a practice would have enabled the funds to pump up the value of illiquid securities on their books. The incentive to manipulate valuations has become more pronounced as investors have abandoned...