A Securities and Exchange Commission official Friday found the head of the agency's Miami office did nothing wrong when he dropped a case against Bear Stearns for mispricing debt securities.

The SEC's inspector general, H. David Kotz, in September concluded David Nelson, the Miami office's regional director, had shirked his responsibilities by closing a case against Bear Stearns even though the office had already negotiated a $500,000 settlement with the investment bank. Kotz recommended disciplinary action against Nelson.

But in a report, Brenda P. Murray, an SEC administrative law judge, said there was ''no basis'' for taking any action against Nelson.

Her ruling ends the matter, an SEC spokesman said.

Nelson was pleased with the decision. ''I consider it a validation not just of me but of all the hardworking professionals in our office and throughout the agency,'' he wrote in an e-mail.

The SEC previously disputed Kotz's findings and called his report misleading.

The inspector general's investigation came after Iowa Republican Sen. Charles Grassley, ranking member of the Senate Finance Committee, requested a probe.

Grassley wondered if the lack of enforcement against Bear Stearns delayed awareness of risky practices that contributed to the bank's collapse.

Grassley was disturbed Murray took no action: ``It's hard to believe that after everything that's happened over the last two years, the Securities and Exchange Commission is refusing to hold anyone accountable for the misconduct.''

The Miami office in 2005 was prepared to charge Bear Stearns in a civil case with fraud.

According to the inspector general's report, W. Holding Co., an affiliate of Puerto Rico's third largest bank, began buying $64 million in bonds and loans bundled into securities from Bear Stearns' Latin American group.

A bank trader violated company policy by calculating his own prices for the securities.

W. Holding failed to follow proper accounting rules when it discovered the improper valuations, resulting in overstating net income in a three-month period.

After the SEC's Miami office investigated, it indicated it would bring an enforcement action for fraud against Bear Stearns for providing false price information. W. Holding agreed to settle for an injunction with no civil penalty.

Ultimately, Bearn Stearns agreed to settle for $500,000. The SEC agreed to replace the fraud charge with an administrative proceeding for failing to supervise its trader.

But in summer 2007, Nelson closed the case. ''Christmas is coming early'' this year, Nelson allegedly told a Bear Stearns lawyer. ``Bear Stearns can keep their money.''

A document prepared by the Miami office at the time said it was dropping the case because it didn't believe it ''would make a sufficiently compelling case for fraud.'' Murray, the administrative law judge, found Kotz's report relied heavily on an action memorandum prepared by SEC lawyers. That, she said, ``had some questionable factual assertions that [Kotz] repeats.''

Murray also said it was ''unrealistic'' to represent that the Miami office would have uncovered evidence of systematic problems at Bear Stearns.

There was no evidence to suggest that the investigation involved anything more than W. Holding's misstating earnings, the value of deteriorating debt securities and the actions of a ''rogue'' trader at Bear Stearns.

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