WASHINGTON -- By agreeing to pay $25 million in a settlement, big Wall Street firm Bear Stearns & Cos. is looking to head off a lawsuit by the Securities and Exchange Commission, which has been investigating its relationship with a small brokerage that defrauded investors.
But Bear Stearns still faces related criminal investigations by Manhattan District Attorney Robert Morgenthau and federal prosecutors. And attorneys representing customers of and investors in A.R. Baron & Co., the now-defunct small brokerage that failed in 1997, said Monday the settlement with the SEC was just a first step.Bear Stearns had processed trades for A.R. Baron, a financial function known as clearing.
"It's a first step toward putting this mess behind them but they still have a way to go," said Max Folkenflik, a securities lawyer. "This is not going to dispose of our claims against Bear Stearns."
Aegis Frumento, another attorney for investors who have sued Bear Stearns over the matter, said the company "is not out of the woods."
Bear Stearns, based in New York, disclosed the tentative settlement Monday in a routine corporate filing submitted to the SEC. A civil suit against Bear Stearns by the market watchdog agency was believed to have been imminent.
The company said the settlement includes a $5 million civil fine, which would be one of the largest levied by the SEC on a single company in recent months.
Bear Stearns likely will neither admit to nor deny wrongdoing in the settlement, normally the case in such agreements with the SEC.
SEC spokesmen declined comment on and would not confirm the agreement in principal for a settlement. The precise nature of the SEC's allegations has yet to be made public.
By settling the case, Bear Stearns would avoid extensive litigation, said Stuart J. Gordon, a former chief counsel in the SEC's enforcement division who now is a private attorney. From the SEC's standpoint, he said, it would have been a difficult case to prove because of the complexities of securities law concerning companies accused of helping others commit fraud.
"It was the most pragmatic thing to do," Gordon said. "This lessens the stigma tremendously" for Bear Stearns.