brokers and MFOD employees falsified order tickets by recording that orders which were actually received after 4:00 p.m. At BS&Co., certain brokers actively facilitated late trading by knowingly processing a large number of late trades for certain of their market timing customers. Some market timers expressed their appreciation for this assistance by giving timing desk employees gifts such as spa gift certificates, event tickets and meals.īear Stearns facilitated late trading.
MARKET TIMING HOW TO
The timing desk also advised customers and brokers on how to evade the blocks and restrictions imposed by the mutual funds and how to negotiate BSSC's own blocking system. The timing desk assisted customers to enter late trades and even to cancel unprofitable trades the following day.
In 1999, BSSC established a "timing desk" to manage the increasing flow of market timing trades through BSSC. BSSC cleared all these unlawful mutual fund trades through its Mutual Fund Operations Department (MFOD). From 1999 through September 2003, Bear Stearns facilitated late trading and deceptive market timing of mutual funds by its customers and customers of BSSC's introducing broker dealers. BSSC is a clearing firm for BS&Co., other introducing broker dealers and prime brokerage customers (i.e., hedge funds that clear trades directly through BSSC). is an introducing broker dealer whose customers buy and sell securities. Bear Stearns made it easier for the hedge funds and the brokers to engage in market timing, and harder for the mutual funds to detect and stop it."īS&Co. Bear Stearns made it possible for hedge funds and brokers to submit orders long after the 4:00 p.m. Tape-recorded phone calls of its employees make plain the two roles played by Bear Stearns that were fundamental to mutual fund trading abuses. Schonfeld, Director of the Northeast Regional Office, said, "Bear Stearns was the hub that connected the many spokes of market timing and late trading - hedge funds, brokers and the mutual funds. This settlement will not only deprive Bear Stearns of the gains it reaped by its conduct, but also require Bear Stearns to put in place procedures to prevent similar misconduct from recurring." As a result, market timers profited while long term investors lost. Linda Chatman Thomsen, SEC Enforcement Division Director, said, "For years, Bear Stearns helped favored hedge fund customers evade the systems and rules designed to protect long-term mutual fund investors from the harm of market timing and late trading. The fine imposed by the NYSE will be deemed satisfied by the payment of the $250 million pursuant to the Commission's Order. censured and fined Bear Stearns, and imposed compliance with these undertakings. Bear Stearns will also undertake significant reforms to improve its compliance structure.
The money will be paid into a Fair Fund to be distributed to the harmed mutual funds and mutual fund shareholders. Pursuant to the Order, Bear Stearns will pay $250 million, consisting of $160 million in disgorgement and a $90 million penalty. The Commission issued an Order finding that from 1999 through September 2003, Bear Stearns provided technology, advice and deceptive devices that enabled its market timing customers and introducing brokers to late trade and to evade detection by mutual funds. (BSSC) (collectively, Bear Stearns), charging Bear Stearns with securities fraud for facilitating unlawful late trading and deceptive market timing of mutual funds by its customers and customers of its introducing brokers. (BS&Co.) and Bear, Stearns Securities Corp. Washington, D.C., MaThe Securities and Exchange Commission today announced a settled enforcement action against Bear, Stearns & Co., Inc. SEC Settles Fraud Charges with Bear Stearns for Late Trading and Market Timing Violations Firm To Pay $250 Million in Disgorgement and Penalties FOR IMMEDIATE RELEASE Press Release: SEC Settles Fraud Charges with Bear Stearns for Late Trading and Market Timing Violations 2006-38 March 16, 2006
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