Bear Stearns Faces SEC Action Over Fund Trades

Wall Street brokerage Bear Stearns Cos. said Wednesday that it faced a possible Securities and Exchange Commission enforcement action and fine over improper mutual fund trading.

The SEC has authorized its staff to bring an enforcement action against the company and its Bear Stearns Securities Corp. unit, the company said in an SEC filing. Bear Stearns said the action could lead to the repayment of ill-gotten gains, civil monetary penalties or other sanctions.

Late trading, first uncovered by New York Atty. Gen. Eliot Spitzer, has been at the core of scandals rocking the $8-trillion fund industry for 18 months.

Bear Stearns said that it believed it had a strong defense to fight potential claims and that it intended to continue talks with the SEC. A company representative declined to comment beyond the SEC filing.

In February, the SEC fined Wall Street brokerage Brean Murray $150,000 for improper trading of mutual fund shares on behalf of several hedge funds.

The SEC said Brean Murray handled the trades through an unnamed clearing firm. Bloomberg News at the time reported that the SEC had concluded that Bear Stearns violated federal investor protection laws by helping brokers conduct “late trading” in fund shares. The news agency said a lawsuit filed in a New York state court implicated Bear Stearns in the Brean Murray case.

The SEC declined to comment on that report. Brean Murray could not be reached for comment.