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IN THE MATTER OF: BEAR STEARNS ASSET * * * * * * * * * * * * * * * * * * |
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STIPULATION AND No. ST-10-7684-S |
WHEREAS, the Banking Commissioner (“Commissioner”) is charged with the administration of Chapter 672a of the General Statutes of Connecticut, the Connecticut Uniform Securities Act (“Act”), and the regulations promulgated thereunder (Sections 36b-31-2 to 36b-31-33, inclusive, of the Regulations of Connecticut State Agencies) (“Regulations”);
WHEREAS, Respondent is an investment adviser registered with the United States Securities and Exchange Commission since June 18, 1987. Respondent filed an investment advisory notice with the Commissioner on February 6, 1998 but did not renew its notice filing under the Act for calendar year 2010;
WHEREAS, the Commissioner, through the Securities and Business Investments Division (“Division”) of the Department of Banking, conducted an investigation pursuant to Section 36b-26(a) of the Act into the activities of Respondent to determine whether it had violated, was violating or was about to violate any provisions of the Act or Regulations (“Investigation”);
WHEREAS, Respondent acted as investment adviser to: (i) Bear Stearns High Grade Structured Credit Strategies Enhanced Leverage Fund, L.P., and (ii) Bear Stearns High Grade Structured Credit Strategies L.P. (collectively “Funds”);
WHEREAS, the Division alleges that, from at least September 1, 2003 to at least July 31, 2007, certain related party transactions engaged in by Respondent were not properly or timely approved prior to execution, as required by the private placement memorandum received by investors in the Funds. The Division also alleges that, during this same time period, certain other related party transactions were approved notwithstanding the fact that the approval requests contained certain informational deficiencies;
WHEREAS, Respondent voluntarily commenced a settlement process (“Settlement”) with certain non-institutional investors in the Funds that resulted in settlements with certain Connecticut investors (“Investors”);
WHEREAS, as a result of the Investigation, the Division learned that certain allegations have been made by one or more Investors that they were coerced into entering into the Settlement with Respondent. Such conduct, if proved, could justify the nullification of the Settlement and could constitute a basis for administrative proceedings under Sections 36b-5(f) and 36b-27 of the Act;
WHEREAS, Respondent denies such allegations of coercion and believes that the Settlement documents reflect that the Investors voluntarily, willingly and knowingly entered into settlements without any coercion whatsoever;
WHEREAS, the Division has an interest in confirming that the Investors who chose to participate in the Settlement did so voluntarily, knowingly and without coercion of any kind;
WHEREAS, Respondent, through its execution of this Stipulation and Agreement, without either admitting or denying the allegations set forth herein, voluntarily enters into this Stipulation and Agreement solely for the purpose of obviating the need for further investigation or formal administrative proceedings concerning the allegations contained herein;
WHEREAS, an administrative proceeding initiated under Section 36b-27 of the Act would constitute a “contested case” within the meaning of Section 4-166(2) of the General Statutes of Connecticut;
WHEREAS, Section 4-177(c) of the General Statutes of Connecticut and Section 36a-1-55(a) of the Regulations of Connecticut State Agencies provide that a contested case may be resolved by stipulation, unless precluded by law;
WHEREAS, Respondent and the Commissioner now desire to resolve the foregoing matter, without the need for further administrative proceedings, and agree to the language in this Stipulation and Agreement;
AND WHEREAS, Respondent, through its execution of this Stipulation and Agreement, voluntarily waives any rights it may have to seek judicial review or otherwise challenge or contest the terms and conditions of this Stipulation and Agreement.
NOW THEREFORE, the parties hereto stipulate and agree as follows:
| 1. |
Within 30 days of the issuance of this Stipulation and Agreement, Respondent shall send a letter by any express delivery carrier that provides a dated delivery receipt to each Investor, as defined herein, with a copy to the Division Director, that provides notice that if the Investor believes that he or she was coerced to enter into the Settlement with Respondent or otherwise suffered from an incapacity that vitiated his or her ability to enter freely into the Settlement, Respondent shall participate in an initial binding mediation (“Initial Mediation”) before a retired state or federal judge to be identified by Respondent, but not unacceptable to the Division Director (“Initial Mediator”), the costs of which, other than the Investor’s legal fees, shall be paid for by Respondent (“Initial Mediation Offer”); |
| 2. |
The Initial Mediation Offer shall expire 30 days after the date that the letter is received by the Investor (“Termination Date”) unless a written request for Initial Mediation is delivered by the Investor to counsel for Respondent prior to such Termination Date. Respondent shall promptly provide a copy of all such written requests to the Division Director. If an Investor does not wish to accept the Initial Mediation Offer, no action is required to be taken by the Investor; |
| 3. | The scope of the Initial Mediation shall be limited solely to the question as to whether the Investor was coerced to enter into the Settlement with Respondent or otherwise suffered from an incapacity that vitiated his or her ability to enter into the Settlement. The Initial Mediation will not address the underlying factual and legal dispute or the merits of the Settlement, including, but not limited to, whether the Settlement was advantageous or disadvantageous to either party; |
| 4. | If, after considering the relevant law and factual evidence, the Initial Mediator determines that Investor was coerced to enter into the Settlement with Respondent or lacked the legal capacity to enter into the Settlement, then Respondent will agree to nullify the Settlement and provide for a second binding mediation (“Second Mediation”). Such nullification would be effective upon Respondent’s receipt of a certified check in the amount previously paid to the Investor by Respondent pursuant to the Settlement; |
| 5. | The Second Mediation shall take place in front of a second mediator (“Second Mediator”) which shall be selected by Respondent from a list of neutral mediators provided by JAMS, but not unacceptable to the Division Director. The costs of such Second Mediation, other than the Investor’s legal fees, shall be paid for by Respondent; |
| 6. | The scope of the Second Mediation shall address the factual and legal dispute underlying the Settlement and any claims that the Investor released against Respondent as part of the Settlement. The scope of the Second Mediation shall also address the Investor’s right, if any, to damages, interest and any other remedy available at law; |
| 7. | Execution of this Stipulation and Agreement by the Commissioner is without prejudice to the right of the Commissioner to take enforcement action against Respondent, its affiliates and successors in interest based upon a violation of this Stipulation and Agreement or the basis for its entry if the Commissioner determines that compliance is not being observed with the terms hereof or if any representation made by Respondent and reflected herein is subsequently determined to be untrue; and |
| 8. | This Stipulation and Agreement shall become binding when executed by Respondent and the Commissioner. |
IN WITNESS WHEREOF, the undersigned have executed this Stipulation and Agreement on the dates indicated.
| Executed at Hartford, Connecticut, | _______/s/_________ | |
| this 5th day of May 2010. | Howard F. Pitkin | |
| Banking Commissioner |
I, [Blank in Original], state on behalf of Bear Stearns Asset Management Inc., that I have read the foregoing Stipulation and Agreement; that I know and fully understand its contents; that I am authorized to execute this Stipulation and Agreement on behalf of Bear Stearns Asset Management Inc.; that Bear Stearns Asset Management Inc., agrees freely and without threat or coercion of any kind to comply with the terms and conditions stated herein; and that Bear Stearns Asset Management Inc. voluntarily consents to the issuance of this Stipulation and Agreement, expressly waiving any right to a hearing on the matters described herein.
| Bear Stearns Asset Management Inc. | |
| By | ____________/s/____________ |
| Name: Gregory Quental | |
| Title: Senior Managing Director |
State of: New York
In witness whereof I hereunto set my hand.
_____/s/_____________________________
Notary Public
Date Commission Expires: October 13, 2010