In 2003, the Securities and Exchange Commission and other regulatory agencies commenced an investigation into allegations that Bear Stearns had facilitated late-trading and deceptive market timing practices for customers purchasing and selling shares of mutual funds. The investigation primarily concerned Bear Stearns & Co., Inc.’s activities as a broker-dealer and Bear Stearns Securities Corp.’s activities as a clearing firm and focused predominantly on the trades of Bear Stearns’ large hedge fund customers.
Bear Stearns denied the allegations contending, in summary, that it did not knowingly violate any law; its management did not facilitate late trading or market timing transactions; as a clearing broker, it merely processed transactions initiated by others; and it did not share in the profits from the late trading, from which it received only $16.9 million in commissions.
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