Regulators Collar Bear:
The SEC and NYSE Regulation jointly censured and fined Bear Stearns $250 million for facilitating late trading and deceptive market timing of mutual funds by its customers and customers of introducing brokers.
Between 1999 and 2003, Bear aided certain customers at beating the system set up to protect long-term mutual fund investors. In one example, the firm established a “timing desk” to help customers evade blocking systems. Also, institutional customers were given direct access to Bear's mutual fund order entry system, allowing them to enter orders and process trades long after the 4 p.m. deadline.
Pattern of Abuse:
NASD fined David Lerner Associates, a brokerage firm in Syosset, N.Y., $400,000 and suspended the firm from doing any business in new variable life insurance or variable annuities for 30 days.
NASD found that between 1998 and 2004, Lerner employees failed to make required disclosures regarding costs and other purchase information to investors for whom old annuity contracts were being replaced. NASD found that Lerner generated a total of more than $4.8 million in revenue from the transactions.
Lerner has previously been fined by the NASD for sales contests in proprietary products and misleading performance advertising.
Junk Fax Scalping:
The SEC filed fraud charges against Dallas-based BMA Ventures, a registered investment advisor, and its president, William Kepler, for conducting a fraudulent “pump and dump” or “scalping” scheme from January 2004 to March 2005.
According to the SEC complaint, Kepler used BMA to inundate fax machines across the country with newsletters touting 26 small-cap stocks traded on the OTC Bulletin Board, or the Pink Sheets. The newsletters lauded earnings prospects and urged readers to buy; meanwhile, Kepler would sell the recommended stocks shortly afterward. The scheme allegedly netted Kepler $1.9 million.
Complaints concerning junk faxes were up 34 percent in 2005 from the previous year, and ranked No. 2 on the SEC's Top 10 list of complaints.
Judge Freezes Ponzi Scheme:
Judge Nora Manella, a District Court Judge for Central California, issued an order freezing the assets of the operators of 12dailypro.com, a Web site the SEC sought to shut down in February.
According to the SEC allegations, the Web site was, in fact, a giant Ponzi scheme that raised more than $50 million from 300,000 people worldwide by offering a 44 percent return on investment in 12 days. In order to receive payment, each individual had to view at least 12 Web pages per day during the 12 days. To fulfill its return promise, the Web site merely passed money from one investor to another, usually relying on membership fees from new and existing members. The defendants consented to the order without admitting or denying the allegations.