Bear Stearns is investigating whether top executives in its private-client brokerage unit approved improper mutual fund trades, Bloomberg News reports.

According to internal documents, Bear Stearns is examining e-mails from 109 of its employees, including several firm executives. Included in that group are the heads of the private client group, Steve Dantus, 48, and Vincent Dicks, 43. Furthermore, the New York Stock Exchange has asked the duo for statements.

In its internal investigation, Bear Stearns is seeking the details of trades by dozens of clients to determine whether or not top executives were aware of or approved the market-timing trades. Notorious hedge fund Canary Capital placed its timing trades through brokers, including Bear Stearns.

The e-mail communications by the 109 employees are being scoured for names of brokers, mutual funds and hedge funds that might raise red flags. Also, names of banks and other legal terms and phrases are being screened. New York law firm Cleary, Gottlieb, Steen & Hamilton is directing the investigation.

The firm is looking for evidence that its employees disguised customer accounts in order to circumvent mutual fund firms’ attempts to stop market-timing trades. Bear Stearns lawyers are looking for communications regarding fund companies that complained to the firm about in appropriate trading activity.

Donald Langevoort, a securities law professor at Georgetown University in Washington, told Bloomberg that "knowledge and facilitation" constitute illegal conduct in the eyes of regulators, and any such instances uncovered could be serious trouble for the firm.

Bear Stearns has been in regulatory limbo for some time, as it was previously informed of possible civil enforcement action by the Securities and Exchange Commission relating to the improper trades.

__
The staff of Money Management Executive ("MME") has prepared these capsule summaries based on reports published by the news sources to which they are attributed. Those news sources are not associated with MME, and have not prepared, sponsored, endorsed, or approved these summaries.

Subscribe Now

Access to premium content including in-depth coverage of mutual funds, hedge funds, 401(K)s, 529 plans, and more.

3-Week Free Trial

Insight and analysis into the management, marketing, operations and technology of the asset management industry.