Dropped Bear Stearns case plagues SEC

MIAMI, Oct. 15 (UPI) -- A fraud case against Bear Stearns dropped by the Securities and Exchange Commission's Miami office has the SEC inspector general seeing red, sources said.

SEC Inspector General H. David Kotz is pushing for sanctions against the head of the commission's Miami office, David Nelson, after learning Nelson dropped a case against investment bank Bear Stearns involving corporate debt securities bought by an affiliate of a bank in Puerto Rico, the Miami Herald reported Wednesday.

The case involved a Bear Stearns trader, who calculated his own prices for securities sold to W. Holding Co. In turn, W. Holding overstated the net return on the investment in its own records, the Herald reported.

W. Holding settled with the SEC in 2005.

Chedley Dumornay, the SEC assistant regional director who oversaw the case admitted the proceedings against Bear Stearns were "back-burnered" the Herald reported.

In early 2007, Bear Stearns lawyer Michael Trager talked the SEC into changing the fraud charge to a complaint of an administrative error for failing to supervise its trader, the Herald said.

With Bear Stearns' collapse in March, the case has surfaced as an early sign of troubles at the investment bank, the newspaper said.