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New York Federal Court Affirms Arbitration Award Against Clearing Firm
In a 54-page opinion, the District Court for the Southern District of New York has handed clearing firm Bear Stearns a major defeat in its efforts to insulate itself from the fraudulent activities of the introducing brokerage firms for which it cleared trades.
In this decision, the court recognizes that clearing firms that simply clear trades should not be liable, but finds that Bear Stearns is liable to the aggrieved investors for their losses at the introducing brokerage firm because it crossed over the line from performing the merely ministerial functions of a typical clearing firm.
The arbitrators found that Bear Stearns was actively involved in the affairs of the introducing firm, for example by loaning money to it, and by exercising discretion in approving or rejecting trades. Bear Stearns thus violated the principle of good faith and fair dealing and good business practices.
Source: McDaniel v. Bear Stearns, 2002 U.S. Dist. Lexis 762
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Sponsored by James J. Eccleston, an attorney representing stockbrokers, financial planners and
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