On a day in which Bear Stearns ( BSC) posted better-than-expected first-quarter profits , securities regulators reminded investors about the Wall Street firm's dark side.
Regulators, in reaching a $250 million settlement with Bear Stearns over its role in the mutual fund trading scandal, painted an ugly portrait of the firm as a full-service facilitator for abusive traders. "Bear Stearns was the hub that connected the many spokes of market timing and late trading, hedge funds, brokers and mutual funds,'' said Mark Schonfeld, director of the Securities and Exchange Commission's Northeast regional office. The amount of the settlement with the SEC and the New York Stock Exchange, while significant, came as no surprise to Wall Street. Back in December, Bear Stearns announced that it had reached a tentative deal with the regulatory agencies. The firm said it had set aside enough dollars to cover the penalty. What is surprising is the level of detail in the SEC's 40-page administrative complaint, documenting the wrongdoing at Bear Stearns. Using excerpts from emails and tape-recorded conversations, the complaint leaves little doubt that many people at Bear Stearns went out of their way to enable hedge funds and small brokers to engage in abusive trading. In one recorded conversation, for instance, an unidentified Bear Stearns employee is overheard cryptically explaining to a hedge fund manager how to engage in late trading by canceling a trade after hours. In fact, the complaint says employees at Bear Stearns often acted as "consultants and trouble shooters'' for rogue traders looking to score. Some hedge fund managers were so appreciative of the extra efforts of those Bear Stearns employees that they showered them with "spa gift certificates, event tickets and meals.'' More importantly, regulators say, top supervisors at Bear Stearns were aware of these activities and approved of them.