Breaking: Bear Stearn Fund Managers Not Guilty

Graphic h/t Calculated Risk

It was clear that they were putting lipstick on a pig, but under the law at the time, it was not outrageous enough to justify a conviction, it appears that hawking their funds while dissing it privately, along with also, in one case, selling those said funds like a maniac, ain't enough to prove guilt.

You see, the standard at the time was, "suitable," which means that they cannot put a client in a clearly improper investment, but they can consider things like their sales commissions and bonuses as a part of the decision, as opposed to the "fiduciary" standard, which requires the agent to act solely in the best interest of the client:

“Buried in President Obama’s proposed regulatory overhaul is a change that could upend Wall Street: Brokers would be held to a higher “fiduciary” standard that would compel them to place their client’s interests ahead of their own.

Currently, brokers are only required to offer investments that are “suitable,” which means they can’t put clients in inappropriate investments, such as a highly risky stock for an 80-year-old grandmother. The move could change the way products are sold and marketed and even how brokers are compensated.”

...

But requiring brokers to operate under a fiduciary standard could force them to offer products that are less costly and more tax-efficient. They will have to disclose any potential conflicts of interest, such as any fees they may get for favoring one product over another. That could mean clients will be offered fewer proprietary products if the broker can find a lower-cost option elsewhere.

Unfortunately, at this point this:

• Has not been implemented
• Applies to a retail broker only
• The proposal appears to continue to allow a firm to penalize a broker who acts in the best interest of their client: see Penalty Box.
  

In any case, I think that proving wrongdoing under a fiduciary standard will be much easier, as it should be.

These guys dicked with their clients mercilessly for their own personal benefit, they just didn't quite, they just did not cross the line to illegal.

Under a fiduciary standard, it probably would.