SEC v. : 03 Civ. 2937 (WHP)
Bear, Stearns & Co. Inc. settled SEC securities fraud charges for issuing misleading research to support investment banking clients, resulting in a court-ordered Distribution Fund to compensate investors who bought SonicWall, Micromuse, CAIS Internet, or Digital River stock during specified periods between November 2000 and April 2002, without admission of liability.
Bear, Stearns & Co. Inc. agreed to a civil settlement with the SEC over allegations of securities fraud involving misleading research recommendations on four technology stocks—SonicWall, Micromuse, CAIS Internet, and Digital River—issued during specific periods between November 2000 and April 2002 to benefit investment banking clients. As part of the settlement, Bear Stearns paid a federal penalty to establish a Distribution Fund, which includes the payment plus any interest earned, to compensate eligible investors who purchased these securities during the court-defined timeframes. The court explicitly stated that the identification of the securities and purchase periods was solely for administrative purposes and not a judicial finding of liability, and no criminal charges were filed.
Bear, Stearns & Co. Inc. settled civil charges brought by the U.S. Securities and Exchange Commission for securities fraud related to misleading research recommendations on four technology stocks: SonicWall, Micromuse, CAIS Internet, and Digital River. The SEC alleged that Bear Stearns issued overly positive analyst reports during specific periods—SonicWall (Jan. 25–May 15, 2001), Micromuse (July 18–Oct. 16, 2001), CAIS Internet (Nov. 7, 2000–April 24, 2001), and Digital River (Jan. 30–April 1, 2002)—to support its investment banking relationships, thereby misleading investors. As part of the settlement, Bear Stearns paid a federal penalty to create a Distribution Fund, consisting of the payment plus any interest earned, to compensate eligible investors who purchased these securities during the designated windows. A court order on October 31, 2003, formally defined the equity securities and purchase periods solely for the administrative purpose of distributing funds, emphasizing that this identification was not a judicial finding of liability. The Distribution Fund Administrator was tasked with designing a fair and cost-effective plan to distribute the funds to eligible recipients. No criminal charges were filed, and the resolution was purely civil, focusing on investor restitution rather than punitive sanctions. The settlement reflected broader regulatory efforts to address conflicts of interest between research and investment banking divisions at major Wall Street firms.
Extracted insights
- company cais internet inc.
- company creation of a distribution fund
- company digital river, inc.
- company distribution fund
- company micromuse, inc.
- company sonicwall, inc.
- Section II of the Final Judgment calls for creation of a Distribution Fund
- Distribution Fund Administrator shall formulate Distribution Fund Plan
- Distribution Fund Administrator shall administer Distribution Fund Plan
- a person must have purchased equity securities in question
- SonicWall, Inc. was purchased during Jan. 25, 2001 – May 15, 2001
- Micromuse, Inc. was purchased during July 18, 2001 – Oct. 16, 2001
- CAIS Internet Inc. was purchased during Nov. 7, 2000 – April 24, 2001
- Digital River, Inc. was purchased during Jan. 30, 2002 – April 1, 2002
- Distribution Fund consists of Defendant’s Federal Payment plus any income and interest earned thereon
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
________________________________________________
:
SECURITIES AND EXCHANGE COMMISSION, :
:
Plaintiff, : Civil Action No.
:
-against- : 03 Civ. 2937 (WHP)
:
BEAR, STEARNS & CO. INC., :
:
Defendant. :
________________________________________________:
ORDER REGARDING DISTRIBUTION FUND PLAN
On October 31, 2003, the Court signed a Final Judgment as to Defendant Bear, Stearns &
Co. Inc. (“Final Judgment”). Section II of the Final Judgment calls for the creation of a
Distribution Fund, which consists of Defendant’s Federal Payment plus any income and interest
earned thereon.
1
Under Section V.A of the Final Judgment, “[t]he Distribution Fund
Administrator shall formulate and administer a Distribution Fund Plan ... intended to provide for
the equitable, cost-effective distribution of funds to Eligible Distribution Fund Recipients.”
Under Section V.C.1 of the Final Judgment, to be an Eligible Distribution Fund Recipient, a
person must have purchased “equity securities in question” through Defendant during the
“relevant period of purchase.” Also under Section V.C.1, “[i]dentification of the ‘equity
securities in question’ and the ‘relevant period of purchase’ for each such equity security will be
set forth (solely for the purpose of administering the Distribution Fund Plan) in a further order of
the Court.”
1
All defined terms in the Final Judgment apply to this Order.
Accordingly, IT IS HEREBY ORDERED that the “equity securities in question” and the
“relevant period of purchase” for each such equity security, as those terms are used in Section
V.C.1 of the Final Judgment, are as follows:
Equity Securities in Question Relevant Periods of Purchase
SonicWall, Inc. Jan. 25, 2001 – May 15, 2001
Micromuse, Inc. July 18, 2001 – Oct. 16, 2001
CAIS Internet Inc. Nov. 7, 2000 – April 24, 2001
Digital River, Inc. Jan. 30, 2002 – April 1, 2002
The identification of “equity securities in question” and “relevant periods of purchase” made
herein is solely for the purpose of facilitating the efficient administration of the Distribution
Fund Plan, is not a judicial or Commission finding, and is not intended to have precedential
effect in other actions.
SO ORDERED.
Dated: New York, New York
October 31, 2003
________________________________
WILLIAM H. PAULEY III
UNITED STATES DISTRICT JUDGE
- 2 - UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
________________________________________________
:
SECURITIES AND EXCHANGE COMMISSION, :
:
Plaintiff, : Civil Action No.
:
-against- : 03 Civ. 2937 (WHP)
:
BEAR, STEARNS & CO. INC., :
:
Defendant. :
________________________________________________:
ORDER REGARDING DISTRIBUTION FUND PLAN
On October 31, 2003, the Court signed a Final Judgment as to Defendant Bear, Stearns &
Co. Inc. (“Final Judgment”). Section II of the Final Judgment calls for the creation of a
Distribution Fund, which consists of Defendant’s Federal Payment plus any income and interest
earned thereon.1 Under Section V.A of the Final Judgment, “[t]he Distribution Fund
Administrator shall formulate and administer a Distribution Fund Plan … intended to provide for
the equitable, cost-effective distribution of funds to Eligible Distribution Fund Recipients.”
Under Section V.C.1 of the Final Judgment, to be an Eligible Distribution Fund Recipient, a
person must have purchased “equity securities in question” through Defendant during the
“relevant period of purchase.” Also under Section V.C.1, “[i]dentification of the ‘equity
securities in question’ and the ‘relevant period of purchase’ for each such equity security will be
set forth (solely for the purpose of administering the Distribution Fund Plan) in a further order of
the Court.”
1 All defined terms in the Final Judgment apply to this Order.
Accordingly, IT IS HEREBY ORDERED that the “equity securities in question” and the
“relevant period of purchase” for each such equity security, as those terms are used in Section
V.C.1 of the Final Judgment, are as follows:
Equity Securities in Question Relevant Periods of Purchase
SonicWall, Inc. Jan. 25, 2001 – May 15, 2001
Micromuse, Inc. July 18, 2001 – Oct. 16, 2001
CAIS Internet Inc. Nov. 7, 2000 – April 24, 2001
Digital River, Inc. Jan. 30, 2002 – April 1, 2002
The identification of “equity securities in question” and “relevant periods of purchase” made
herein is solely for the purpose of facilitating the efficient administration of the Distribution
Fund Plan, is not a judicial or Commission finding, and is not intended to have precedential
effect in other actions.
SO ORDERED.
Dated: New York, New York
October 31, 2003
________________________________
WILLIAM H. PAULEY III
UNITED STATES DISTRICT JUDGE
- 2 -