Bear Stearns Fraud
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| Bear Stearns Fraud InfoCenter is an Internet resource that offers you an opportunity to research securities fraud and your legal rights associated with brokerage fraud. Bear Stearns Fraud InfoCenter does not offer legal advice or referrals. |
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Bear Stearns FraudBear Stearns & Co. is a leading brokerage and global investment banking firm that serves both individuals and institutions. Services offered by the firm include asset management, global clearing services, research, e-commerce, and securities trading. Why is Bear Stearns accused of fraud? Bear Stearns has faced a barrage of fraud charges over the past several years. In most of the cases, the firm has been accused of supporting its clients’ fraudulent actions against investors. Bear Stearns and its employees have categorically denied the allegations. Some of the most important cases against Bear Stearns & Co. are summarized below. In 1999, Bear Stearns settled a case with the Securities and Exchange Commission (SEC) for more than $35 million. The SEC had charged Bear Stearns with helping A.R. Baron (a Bear Stearns client) defraud investors of $75 million through illegal trades and stock manipulation. Bear Stearns performed clearing services (mediating between the buyer and seller in a market transaction) for A.R. Baron even once problems with Baron’s penny stock business became evident. (Penny stocks are usually valued at less than $1 per share and are traded over the counter.) According to a CNN news report, Bear Stearns said that it settled the case because on a “negligence-based standard,” it was a “cause” of A.R. Baron’s fraud. Bear Stearns Stearn’s former president, Richard Harriton, was charged individually in the A.R. Baron case as well. Against the advice of his clearing staff, Harriton allegedly continued to support Baron by issuing the company credit and charging customers for trades despite that fact that four-fifths of the deals failed to close. The SEC claimed that Baron executives offered Harriton IPO shares in exchange for his assistance in clearing their firm. Harriton settled his case for $1 million in 2000 without admitting any wrongdoing. In October of 1999, Bear Stearns was hit with another fine. The firm was required to pay $2.5 million after one of its clients took investors’ money in a Ponzi (pyramid) scheme. Bear Stearns’s client, Robert D. Schmidt, was sentenced to ten years in prison for embezzlement. He pled guilty to charges accusing him of setting up a false investment company in which he used the money collected from new investors to pay previous investors. Although Bear Stearns denied having sufficient knowledge of Schmidt’s business to bear any liability for his actions, the National Association of Securities Dealers (NASD) made the company pay $1.1 million back to investors. Three Bear Stearns employees were ordered to contribute an additional $1.4 million. The fine was substantially less than the damages that the plaintiffs had originally sought: $11.8 million in compensatory plus $50 million in punitive damages. Finally, in October 2002, a New York judge sent a fraud case against Bear Stearns to a jury. The case was a $77 million class action lawsuit filed against Bear Stearns on behalf of investors who claimed they had lost their money due to the fraudulent actions of David Blech, a Bear Stearns client. The judge stated that a summary judgment could not be made because there were not enough facts available to determine if Bear Stearns was guilty or not. Bear Stearns said that it had no knowledge of Blech’s stock manipulating (he pled guilty to charges of fraud in 1999). The investors who lost their money to Blech want to convince the jury otherwise. What is the current status? The A.R. Baron cases against Bear Stearns and its former president have been settled. Bear Stearns paid over $35 million, and Harriton paid $1 million. In the case involving Richard Schmidt’s Ponzi scheme, Bear Stearns was required to pay $2.5 million to Schmidt’s investors. The class action lawsuit filed against Bear Stearns for its possible involvement in David Blech’s fraud was scheduled for a jury trial. |