TRAV, LARK is gonna throw yer sorry arse out on the street:"SEC Staff Weighing Civil Fraud Charges Against Bear Stearns in A.R. Baron Case
By CHARLES GASPARINO
Staff Reporter of THE WALL STREET JOURNAL
Regulators have signaled they may file civil securities-fraud charges against
Bear Stearns Cos. in a closely watched case involving the responsibility of
Wall Street firms when they clear trades for smaller brokerage companies.
The Securities and Exchange Commission's enforcement staff has notified
Bear Stearns and one of its senior executives that it plans to recommend
filing the civil charges against them for the activities of the firm's big
trade-processing unit, according to people familiar with the matter.
The Bear Stearns Case
A timeline of events in the investigation of Bear Stearns and A.R. Baron:
May 1997:
Federal and state authorities investigate Bear Stearns in its role of processing
trades of A.R. Baron & Co. Bear Stearns says it did nothing wrong.
June 1997:
Some Wall Street clearing firms re-evaluate their clearing activity amid the
heightened government scrutiny of the clearing business.
September 1997:
Bear Stearns CEO James Cayne warns that holding clearing firms responsible for
the activities of smaller firms would cause clearing firms to abandon the
business.
Summer 1998:
SEC issues Wells notice to Bear Stearns stemming from its investigation of the
firm's clearing business.
January 1999:
Bear Stearns offers about $1 million to settle a criminal case pursued by the New
York County District Attorney's office.
The SEC move is the first clear sign that Bear Stearns could face charges
from a high-profile investigation examining its role in "clearing," or
processing trades for smaller brokerage firms. Bear Stearns is also being
investigated by the New York County District Attorney's office and the
Manhattan U.S. attorney's office, in an important test case for Wall Street
because the results could pinch profits of trading titans such as Bear
Stearns.
At issue in the investigation is Bear Stearns's activities in clearing for the
now-defunct A.R. Baron & Co., which has been accused by the New
York District Attorney's office of defrauding investors of $75 million. As a
clearing agent, Bear Stearns executes trades, maintains client records and
sends out confirmations of trades. Regulators are examining whether Bear
Stearns ignored warning signs of allegedly fraudulent activity while it
reaped lucrative clearing fees.
Bear Stearns and the executive, Richard Harriton, have strenuously denied
wrongdoing. The firm argues that it is prohibited under its clearing
agreements to supervise the sale practices of the firms it clears for. Bear
Stearns also asserts that it is unfair for regulators to criticize the firm for
clearing for A.R. Baron when regulators knew of that firm's problems --
and yet allowed it to remain in business -- well before they moved to close
down the firm in 1996, according to people close to the matter.
The SEC, as is its custom, declined to confirm or deny the existence of
any investigation. A Bear Stearns spokeswoman declined to comment on
the SEC move. Mr. Harriton, the firm's clearing chief, didn't return
telephone calls. Mr. Harriton's lawyer, Howard Wilson of Rosenman &
Colin in New York, said: "The facts show that Richard Harriton acted at
all times in good faith and consistent with the established rules of the
clearing industry."
Throughout the two-year investigation, Mr. Harriton has remained senior
managing director and president of Bear Stearns Securities Corp., the
firm's clearing unit.
The result of the investigation could trigger new rules on the responsibilities
of Wall Street clearing firms, securities lawyers say. Currently, regulations
don't hold clearing firms responsible for the activities of the small brokers
for which they process trades.
Bear Stearns and Mr. Harriton received notification of the potential
charges from the SEC's enforcement staff in the form of a so-called Wells
notice. The SEC's notice doesn't guarantee that the commission will bring
civil fraud charges against either the firm or Mr. Harriton. Indeed, the
Wells process is part of a standard procedure used by Wall Street's top
cop to give firms and individuals potentially facing charges a chance to
argue before the commission that it shouldn't follow the staff's
recommendations, or to persuade the staff itself to change its mind and not
push for charges. Yet the commission often follows the staff's
recommendations.
In recent weeks, Bear Stearns has mounted a vigorous defense of its
clearing practices in light of the government's action, according to the
people close to the matter. The gist of the firm's argument: No executives
at Bear Stearns knew of or participated in any improper activities relating
to the small brokerage houses at the center of the SEC's inquiry.
Bear Stearns has argued to the SEC that there was no fraud involved in its
clearing activities with any of the firms involved, and that no Bear Stearns
official personally profited from the activities of the small brokerage firms
under scrutiny, the people say.
The SEC so far hasn't formally responded to Bear Stearns's defense, the
people say. The Wells notice to the firm, which went out several months
ago but remains under wraps, also recommended books-and-records
violations and charges of aiding and abetting fraudulent activity, the people
close to the matter say.
While the SEC is pursuing a possible civil action, the New York County
District Attorney's office and the U.S. attorney's office are investigating
whether criminal charges should be filed against the firm. As reported,
Bear Stearns recently offered to pay a fine of about $1 million to settle a
separate criminal case by the New York County's District Attorney's
office.
Bear Stearns has warned regulators that any crackdown on its clearing
operations could have a chilling effect on the entire clearing industry, which
helps many small brokerage firms compete in the financial business. Any
regulatory proposal to hold clearing firms responsible for the activities of
smaller firms that hire them to process trades might cause many brokerage
firms to curtail or even abandon the business altogether, Bear Stearns has
said.
The firm has suggested to regulators that they would be better off changing
the business in other ways. One Bear Stearns proposal is to require small
brokerage firms that derive a large percentage of their revenue from selling
microcap stocks to tape telephone calls between brokers and their
customers."
Enough of your crim bs, time to go old man. |
