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Bear Stearns Makes Settlement Offer

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NEW YORK (–Bear Stearns said Thursday [Dec. 15] it has made a settlement offer to the Securities and Exchange Commission in hopes of ending the commission’s investigation into mutual fund market-timing trades conducted through the firm.

In an earnings announcement, Bear Stearns officials said they had offered to pay a US$250 million fine and to hire independent consultants to review Bear Stearns’ mutual fund trading and global clearing operations. The settlement offer is subject to approval by the SEC, but was negotiated with staff members from the SEC and the New York Stock Exchange. According to Bear Stearns officials, the settlement offer will be supported by both the SEC and NYSE staffs, which will recommend approval.

“As one of the leading financial services providers, we take our responsibilities to our clients very seriously,” said James E. Cayne, Bear Stearns’ chairman and chief executive, in a statement. “We believe that seeking to resolve this issue is in the best interests of our shareholders, clients and employees.”

Bear Stearns has already set aside money to pay the penalty. In a July filing with the SEC, Bear Stearns said it had increased its legal reserve by US$100 million during the quarter ended May 31. The company indicated at that time it was discussing with SEC staff a possible settlement of allegations that its clearing arm had helped hedge funds make market-timing trades in various mutual funds.

Adding the money in the second quarter effectively doubled the amount of funds the company had set aside in the legal reserve fund. Bear Stearns had already placed US$100 million in the fund in late 2004.

Earlier this year, the SEC had voted to proceed with an enforcement action against Bear Stearns, and various Bear executives had become targets of the SEC’s investigation into the mutual fund market-timing scandal.

Rumors of a pending settlement between Bear Stearns and securities regulators have been swirling for at least 18 months.

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Contact Bob Keane with questions or comments at [email protected].