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Bear Stearns in settlement
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August 5, 1999: 12:47 p.m. ET
Brokerage to pay $38.5M in restitution, costs of probe to settle SEC charges
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NEW YORK (CNNfn) - Bear Stearns Cos. Inc. agreed Thursday to a $38.5 million settlement, a far higher sum than earlier expected, to end long-running charges by the Securities and Exchange Commission that its clearing unit ignored fraud at the now-defunct A.R. Baron securities firm and helped forestall the firm's demise.
Bear Stearns did not admit or deny any wrongdoing under the settlement, which stems from the collapse of Baron two years ago following allegations of stock manipulation and unauthorized trades. Bear Stearns' clearing unit -- a lucrative industry on Wall Street -- processed and guaranteed trades for Baron.
Bear Stearns "took extraordinary steps to keep Baron in business," SEC enforcement director Richard Walker said at a news conference in New York announcing the deal. He said that Bear Stearns' clearing unit furthered Baron's fraud by charging unauthorized trades to Baron's customers that cost investors millions of dollars.
No criminal charges will be filed against Bear Stearns under the deal. However, the clearing unit's senior managing director and president, Richard Harriton, has been charged with fraud and aiding and abetting Baron's fraud, Walker said.
In a statement, Bear Stearns said Harriton has resigned and plans to fight the SEC charges.
"We are disappointed that Dick is leaving, but we understand that his considerations as an individual are different than ours as a corporation," Bear Stearns CEO James E. Cayne said. "We respect his decision."
The company also said that its clearing unit was technically "a cause" of Baron's fraud on "a negligence-based standard." Settling the case "was a prudent business decision undertaken to end what has become a distraction for the company, its shareholders, its employees and its customers," the company said.
Harriton will be replaced by Richard Lindsey, a former SEC official who joined Bear Stearns in March, and Michael Minikes, a senior managing director and treasurer of the firm.
Under the deal, Bear Stearns will pay a $5 million fine and establish a restitution fund of $20 million to settle customer claims. That arrangement had been reported earlier this summer and was awaiting SEC approval.
In addition, Bear Stearns will pay an additional $10 million to the restitution fund through a deal with the Manhattan District Attorney's Office, plus $1.5 million for the costs of the district attorney's investigation as well as payments of $1 million each to the state of New York and New York City.
An independent consultant also will be appointed to probe the clearing unit's procedures, and Bear Stearns will be required to adopt all of the recommendations that are put forward. Bear Stearns' clearing unit accounts for more than 10 percent of the New York Stock Exchange volume cleared through the National Securities Clearing Corp. each day.
The settlement "establishes that the securities industry and clearing houses in particular are responsible for the consequences of their actions," Manhattan District Attorney Robert Morgenthau said.
The SEC began its investigation into Bear Stearns in May 1997 after A.R. Baron shut down. At that time, the Manhattan district attorney's office charged Baron and 13 of its executives and brokers with defrauding investors of about $75 million. All 13 Baron officials subsequently pleaded guilty or were convicted of securities fraud.
Thursday's agreements won't have a material effect on its business or financial condition, Bear Stearns said.
Bear Stearns (BSC) stock slipped 11/16 to 40-15/16 at midday Thursday. 
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Bear Stearns
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