Bear Stearns May Settle SEC Late Trading Case

by Glen Shapiro, LawAndTax-News.com, New York

14 July 2005

Although Bear Stearns says it has defences against SEC accusations of improper mutual fund trading, the company has doubled its legal reserves to $200 million and says it is in settlement discussions with the Commission.

The SEC had claimed that Bear Stearns had assisted hedge funds to conduct "late trading". Late trading involves the purchase of mutual fund shares after the markets close, but at day-end prices, which gives an unfair advantage to traders and potentially erodes the returns of long-term shareholders.

Last month, Bear Stearns said that SEC commissioners had authorized the agency to bring charges against the company. Settlement discussions are said to have centred around a payment in the $200-300m range, according to unofficial reports.

New York Attorney General Elliot Spitzer uncovered widespread trading abuses in the $8 trillion fund industry in 2003; both he and the SEC have settled a number of cases brought as a result of the investigation. However last month their campaign faced a setback when former Bank of America broker Theodore Sihpol was acquitted on most charges that he helped a hedge fund engage in late trading.

Bear Stearns says it has dismissed nine employees in actions related to the probe of improper fund trading, and at least eight current and former employees have been told that the SEC is considering enforcement actions against them.

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