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Bear Sterns Late Mutual Fund Trading Scandal

On March 16, 2006 the mutual fund trading scandal in which Bear Sterns was involved was finally ended. Mr. Sterns agreed to pay $160 million as a return of the illegally made gains and additional $90 million in penalties, which sums up to the total of $250 million. These sums were negotiated together with the SEC, NYSE and Sterns and were satisfying to the three parties.

The Case of Bear Sterns

Bear Sterns got into this mess by having special attitude toward marketing timing hedge funds. The illegal activities were supported by specially set time periods during which the trades were done.

After the trading day was over at 4pm, "special" customers were allowed to enter Sterns's mutual fund order system and still make deals. Additionally, other "privileged" clients were allowed to falsify the hours of the order tickets that were no made within the trading day. What's more, if their deals were not profitable enough, Sterns annulled the transactions on the next day.

Generous Gifts

In return to these "favors", the "privileged" expressed their gratitude to Bear Sterns's employees in terms of generous gifts, such as dinners in expensive restaurants, best seats at sporting events and spa procedures.

Not the First Scandal

This is not the first scandal in Bear Sterns's organization, since in 2004 the $24.7 million profits of the organization's CEO James Cayne, arose the suspicions of the SEC. Despite the many complaints that were received in Bear Strens's office, he didn't terminate the illegal practice of late trading. This was done only after the dealer agreement was in danger of termination. Even though SEC hits the headlines about discovering all these frauds, we should pay our recognition to the contribution of Elliot Spitzer, who was the first to reveal the trading scandals that were going around.

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