Bear Stearns Cos. has reached an agreement in principle to pay up to $25 million to settle an investigation by the Securities and Exchange Commission into its clearing business, a lucrative operation that handles administrative work for smaller firms.

The deal, outlined in a filing today with the SEC, appears to resolve a two-year investigation stemming from Bear Stearns's involvement with A.R. Baron, a defunct brokerage firm that prosecutors say stole $75 million from customers.

Terms have not been finalized and the settlement still must be approved by the SEC. But securities experts are already heralding it as a milestone because it would be the biggest penalty a Wall Street firm has ever paid for the way it cleared trades for another securities firm.

"This is a clear signal that going forward, the SEC is going to be taking a much harder look at the clearing industry," said Ira Lee Sorkin, a New York securities attorney and former SEC and Justice Department lawyer. Bear Stearns and the SEC would not comment.

Bear Stearns is a leader in the clearing business, which altogether generates more than $20 billion in revenue annually for firms that handle an array of tasks for smaller securities firms, such as paperwork, processing loans and mailing out monthly statements to customers. Financial filings show that Bear Stearns last year handled more than 10 percent of the New York Stock Exchange volume cleared through the National Securities Clearing Corp. depository. Clearinghouses, securities firms and exchanges settle their trades through NSCC.

Because clearing firms never deal directly with customers, they have traditionally been immune from blame when customers complain. But regulators are pushing to change that.

In a move to stop manipulation of small, thinly traded stocks, the SEC in early June approved rules that require clearing firms to report signs of suspicious trading activity. Regulators also plan to propose a second set of measures that would require clearing firms to look out for fraud.

"You can't go along and be a shut-eyed sentry," said John Coffee, a professor at Columbia Law School. "Bear Stearns wasn't defrauding. But it's a cog in a machine, where there's fairly blatant fraud."

Bear Stearns was the main clearing firm for A.R. Baron, which was charged by criminal investigators of defrauding investors by manipulating stock and conducting unauthorized trades. Thirteen A.R. Baron officials were found guilty of securities fraud. The firm closed in July 1996, after a series of regulatory penalties.

Regulators began a two-year probe to weigh how much Bear Stearns knew and its responsibility for reporting the information. Bear Stearns agreed to pay a $5 million fine and $20 million in restitution, according to the SEC document.

That puts nearly a third of the financial responsibility on Bear Stearns's shoulders -- a figure that legal experts expect to become a benchmark. "It is a ratio that will loom large in future cases," said Coffee. "This case will serve as the template for the obligations of clearing firms."

Bear Stearns had $18.9 billion in capital at the end of 1998.

The deal does not resolve the SEC's investigation of Richard Harriton, a senior managing director at Bear Stearns who heads the clearing unit. His attorney, Howard Wilson, said he could not comment because Harriton is still in discussions with the SEC. Bear Stearns has previously said its executives were unaware of improper activities at A.R. Baron.