Back-Office Figure Emerges in Bear Stearns Investigation

"Delvecchio and his group are a natural place for investigators to look," says one person familiar with the inquiry who requested anonymity. "They are clearly in the middle and may have lots of information."

James Nesfield, a former consultant to the now infamous Canary Capital Partners hedge fund, which paid a $40 million fine last year over its role in the trading scandal, says: "My understanding of Bear was all things passed by Delvecchio's desk."

Several people familiar with the investigation characterized the role of Delvecchio and his group as that of toll collectors, saying that even if there were systemic violations at Bear Stearns, his team was just carrying out policies put into motion by others. Still, a determination that Bear Stearns should have known its clearing platform was being abused could draw it into a scandal that until now has focused almost exclusively on sophisticated brokerage clients and the mutual fund families they traded.

Delvecchio did not return telephone calls to his office at Bear Stearns. His attorney, Howard Wilson, a former top federal prosecutor in New York and a partner with Proskauer Rose, declined to comment.

People familiar with Bear Stearns say the firm had policies in place to stamp out abusive mutual trading such as market timing and illegal late-trading. In recent months, the firm has dismissed a number of brokers and clearing executives for violating those polices. People familiar with the firm suggest these are isolated incidents and Bear Stearns is not aware of any widespread improper behavior.

Bear Stearns' attorney, Lewis Liman, a former federal prosecutor and a partner with Cleary Gottlieb Steen & Hamilton, didn't return a telephone call.

Market timing, or frequent trading of mutual fund shares, is technically a legal trading strategy. But it is prohibited under most mutual fund prospectuses because it can dilute the value of a portfolio's holdings. Late-trading, meanwhile, is an illegal practice in which someone buys shares of a mutual fund after their 4 p.m. closing price in order to take advantage of late-breaking, market-moving news.