“An arbitration panel ordered Wall Street’s Bear Stearns Cos. to pay $1 million in punitive damages to two customers of A.R. Baron & Co., saying the big New York brokerage house ‘aided and abetted, with knowledge, a criminal and fraudulent enterprise.’ ” writes Ruth Simon in today’s Wall Street Journal.

“The 36-page decision is notable because it involved Bear Stearns’s role as a clearing firm. Clearing firms typically process trades, but the arbitration panel found that Bear Stearns’s actions went beyond normal practices and ‘helped cause’ customer losses.”

“A.R. Baron was a small New York brokerage house that was shut down in 1996 by regulators who accused it of defrauding investors out of $75 million by manipulating stock prices and initiating trades without investor authority.”

“The award came in a case filed by Bernard and Maureen McDaniel of Ireland, who invested about $1 million with A.R. Baron. The McDaniels ended up losing nearly $800,000. In addition to $1 million in punitive damages, they were awarded $168,000 in legal fees and interest.”

“Elizabeth Ventura, a spokeswoman for Bear Stearns, said the investment bank intends ‘to take all available legal options to overturn this decision.’ Ms. Ventura added, ‘We believe the result was wrong, particularly in its award of punitive damages. It appears that the panel rehashed and accepted as true, without real proof, allegations’ made by the Securities and Exchange Commission.”

“In the decision, a three-member arbitration panel said Bear Stearns’s actions were ‘carried out by or with the knowledge of top Bear managers’ and ‘demonstrated reckless and callous disregard or indifference to the rights of its customers.’