The Massachusetts Securities Division says that Bear Stearns Asset Management Inc. (BSAM) violated securities laws in principal transactions it took part in with two hedge funds that it also advised.
State securities officials filed an administrative complaint against the company earlier this month. In the complaint, Bear Stars is charged with taking part in improper trading activities in the Enhanced Leverage Fund and the Bear Stearns High Grade Structured Credit Strategies Fund. Both funds fell into bankruptcy over the summer.
The complaint claims that BSAM traded securities from its account into the two founds without permission from the client funds’ independent directors. Consent is necessary under state and federal securities laws and BSAM’s own prospectus and representations.
The 1940 Investment Advisers Act bans investment advisers from taking part in major transactions with a client without letting the client know about a transaction and obtaining its consent.
At BSAM, the disclosure and consent procedure is called a Principal Trade Letter and is used to minimize conflicts of interest between the investment vehicles that BSAM oversees, including Bear Stearns, the High Grade Fund, and BSAM.
In the complaint, security regulators say BSAM did not fulfill its obligations pertaining to principal transactions from 2004-2007. Regulators are also accusing BSAM staffers of not knowing when to use PTLs and not properly training the employees who were in charge of obtaining approvals from directors.
The complaint says that BSAM violated the Massachusetts Uniform Securities Act. Regulators want BSAM to cease and desist its violations of securities law and to pay a censure fine and other necessary relief.
If you are an investor who has lost money because of the misconduct of an investment adviser, contact Shepherd Smith and Edwards today. We have helped thousands of US investors recover such losses. One of our securities fraud attorneys would be happy to speak with you.
Related Web Resources:
Massachusetts Regulators Accuse Bear Stearns of Fraud, The Wall Street Journal, November 14, 2007