Short-selling in breach of the Law
In November 2001 Bear Stearns ordered a member firm of a stock exchange short-selling of stocks by a client's orders without legally required indication to the member firm many times. This was because Bear Stearns did not confirm whether or not the orders from its client were short-sales.
In addition, by the investigation on sampling trading days, Bear Stearns was found to have conducted short sales at a price lower than the latest published price immediately prior to the short sale.
The conduct above was found to have violated the Article 26-3 (4), the Article 26-4 (2) of the Cabinet Order (the Securities and Exchange Law) and the Article 162 (1) (i) of the Law, both of which regulate short-selling.
Conclusion of a contract to manage a discretionary account
Bear Stearns concluded a contract with a client to manage a discretionary account, which enabled Bear Stearns to decide whether to purchase or sell, issues of stock, volume and price without obtaining individual consent of the client. And Bear Stearns executed many transactions based on the contract.
The conduct above was found to have violated the Article 42 (1) (v) of the Law applied based on 14 (1) of the Law on Foreign Securities Firms.
The Financial Services Agency ordered Bear Stearns to suspend securities business with affiliated companies from February 28, 2002 until March 27, 2002.
