Bear Stearns Says SEC Weighs Charges

Updated from 11:12 a.m. EDT

Bear Stearns(BSC), the 81-year-old brokerage whose massive clearing operation provides a crucial backbone for Wall Street, is on the verge of being charged by government investigators with helping to facilitate the illicit strategies at the heart of the mutual fund trading scandal.

Bear Stearns said Wednesday that regulators in the Securities and Exchange Commission's New York office are considering a civil action or cease-and-desist order against the firm and its clearing subsidiary. Bear would be the first major Wall Street brokerage to be sanctioned in the nearly year-old mutual fund scandal.

The company currently is in talks with regulators about a possible settlement, but no deal is imminent, people with knowledge of the situation told TheStreet.com. A Bear Stearns spokeswoman could not be reached for comment.

The SEC's interest in Bear was the subject of a series of stories on this Web site, including the first word of the investigation, articles chronicling investigators' interest in an operations manager whose office directed traffic in the clearing unit, and the role of Bear employees informally known as the "timing group" in facilitating abusive trading strategies.

Bear Stearns said it is cooperating with regulators. The firm says the SEC action could result in a disgorgement of profits, civil monetary penalties and other sanctions.

In a conference call with analysts, Bear Stearns Chief Financial Officer Samuel Molinaro said: "This is the next step in moving this process to some completion."

In early trading, shares of Bear Stearns were up $1.18, or 1.5%, to $80.61, as investors mainly focused on a robust second-quarter earnings report.

For Bear -- which paid a $38.5 million fine five years ago to settle charges that defunct brokerage A.R. Baron carried out stock manipulation over its clearing platform -- the screws began to tighten last month with word the SEC notified Empire Financial(EFH) that it was planning to file civil charges against it. Empire, a small Florida brokerage that cleared and processed its mutual fund trades through Bear Stearns, is said to have been one of the most aggressive firms in providing a trading platform for abusive traders.