This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Focus in Fund Scandal Turns to Bear Stearns

Clearing is a largely administrative process in which firms serve as custodians for brokerage accounts and process and execute all trades. Small brokerages often rely on clearing firms to handle the back-office function of processing customer trades, because the operation is both costly and capital-intensive.

Bear Stearns and Bank of New York have two of the biggest clearing operations on Wall Street.

Back in 1999, Bear's clearing operation got in a heap of trouble over its role in the infamous A.R. Baron stock-fraud case that bilked investors out of $75 million. Baron, a now-defunct brokerage firm, used Bear's stock-clearing operation to process transactions in stocks that were manipulated by Baron brokers. Bear paid a $38.5 million fine to the Manhattan district attorney and the SEC to settle an investigation into its role in the fraud.

The scandal led to new rules that require clearing firms to inform regulators of any investor complaints lodged against one of their customers.

Meanwhile, the allegations in the lawsuit that Bear Stearns established a trading platform for hedge funds to engage in market-timing and late trading sounds similar to allegations leveled by investigators against Bank of America (BAC - Get Report) and Security Trust, a Phoenix-based trust bank. In its $40 million settlement with Canary Capital Management, Spitzer's office alleged that both Bank of America and Security Trust built trading platforms that made it easy for Canary to make illegal trades.

In fact, the lawsuit contends that Canary and Millennium Partners, another hedge fund implicated in the scandal, both used the Bear platform to make some of their trades.

A lawyer for Millennium couldn't be reached for comment. A source familiar with the investigation said Canary didn't actually make any trades on the Bear Stearns system. However, Canary did use Bear Stearns to clear and execute some of its trades.
3 of 5

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
BAC $14.08 -0.35%
JNS $14.12 0.04%
MCC $6.68 -0.74%
AAPL $92.90 -0.77%
FB $118.02 -0.03%


Chart of I:DJI
DOW 17,686.02 +34.76 0.20%
S&P 500 2,053.44 +2.32 0.11%
NASDAQ 4,730.30 +4.6610 0.10%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs