Top Wall Street clearing broker Bear Stearns & Co. will pay $38.5 million to end a two-year probe into its transactions with a now-defunct brokerage, A.R. Baron & Co. The settlement with the Securities and Exchange Commission and Manhattan prosecutors was announced yesterday.

Bear Stearns--which accounts for more than 10 percent of the New York Stock Exchange's daily volume cleared through the National Securities Clearing Corp.--settled the charges without admitting or denying the SEC's findings. Nevertheless, the two-year probe has been a black eye for one of Wall Street's most powerful institutions.

The SEC also charged senior Bear Stearns executive Richard Harriton, the president of Bear Stearns Securities Corp., with securities-law violations. He resigned from the company yesterday. A company statement said he will fight the SEC charges.

Harriton is to be replaced by two company executives, Michael Minikes and Richard Lindsey, who were named co-presidents.

A clearing firm executes trades and maintains records for other securities firms, often at a hefty profit. But with yesterday's settlement, the SEC made it clear that it expects clearing firms to also investigate possible fraud by their customers.

Bear Stearns Securities processed trades for A.R. Baron & Co., a small brokerage that the Manhattan district attorney's office accused in 1996 of defrauding investors of $75 million.

The SEC said Bear Stearns was aware of Baron's unauthorized trading in customer accounts and that it "assisted Baron in staying in business when it knew that Baron lacked required capital to operate and was engaging in an ongoing fraud."

"A firm's status as a clearing broker does not immunize it from the consequences of participating in a fraud," said Richard H. Walker, the SEC's director of enforcement.

As part of the settlement, Bear Stearns will contribute $30 million to repay investors who said they were defrauded by A.R. Baron. It will also pay a $5 million fine to the federal government, $1 million each to New York state and New York City and $1.5 million to the Manhattan district attorney's office to cover the cost of the investigation.

In a news release, Bear Stearns said that "settling these matters was a prudent business decision undertaken to end what has become a distraction for the company, its shareholders, its employees and customers." The settlement headed off an SEC civil suit and possible criminal prosecution.

Baron and 13 of its officers and brokers have pleaded guilty to, or were convicted of, criminal charges brought by city prosecutors. Bear Stearns Securities clears trades in more than 70 countries and has 2,700 clients.