Bear Stearns’ mutual fund trading practices are being probed by the U.S. Attorney’s office – and just about every regulatory agency under the sun – the firm disclosed in an SEC filing yesterday.
Also investigating the firm are the Securities and Exchange Commission, the New York Attorney General. The New York Stock Exchange and the Commodities Futures Trading Commission have requested information as well.
Regulators are looking at mutual fund trading practices at many financial institutions, including hedge funds that engaged in improper trading, broker-dealers who helped facilitate such trades and mutual funds that allowed practices often discouraged in the fund’s prospectus.
The practices under the microscope include market timing – the rapid trading of shares that is not illegal but can have negative long-term effects on returns – and late trading, which is illegal.
The focus of the various inquiries into Bear Stearns is unclear, but the firm has massive clearing operations, processing trades for a wide swath of other brokerage firms. That brings into question what the firm knew about clients under investigation for late trading or market timing.
The Post first reported that Bear Stearns was being investigated by the SEC and New York Attorney General’s office for its mutual fund practices. That information was revealed in a subpoena issued by the Philadelphia office of the SEC to brokerage house Brean Murray, which had a market timing group and cleared its trades through Bear Stearns.
Bear Stearns fired four brokers and two assistants last week in an action related to mutual fund trading activity.
A Bear Stearns spokesman said they are cooperating with all the inquiries but declined to comment further. A member of the U.S. Attorney’s office declined to comment.