CalPERS, which represents about 1.4-million California public employees, wants others to join its suit alleging fraud.
By Associated Press
Published December 17, 2003
SACRAMENTO - The nation's largest public pension fund announced Tuesday it is filing a class-action lawsuit against the New York Stock Exchange, alleging that fraudulent practices have cost it millions of dollars in recent years.
The $154-billion California Public Employees Retirement System, representing an estimated 1.4-million members, will seek to recover pension fund investment money it lost because of "illegal trading practices on the New York Stock Exchange," said Sean Harrigan, president of CalPERS.
The lawsuit names the stock exchange and seven specialist trading firms: LaBranche and Co.; Bear Wagner Specialists; Spear, Leeds & Kellogg Specialists; Van Der Mollen Specialists USA; Fleetboston Financial Corp.; Performance Specialist Group; and Susquehanna Specialists Inc.
"We're convinced, and we will seek to prove in court, that the New York Stock Exchange not only knew of these rampant problems, and knew they existed, but also perpetuated them," Harrigan said.
Officials said they decided to sue rather than rely on the Securities and Exchange Commission, which is conducting its own investigation into floor trading, because the SEC has not done its job.
CalPERS is seeking an unspecified amount of money, but officials of the pension fund said it could amount to hundreds of millions if others join the suit. CalPERS has $60-billion invested on Wall Street.
The NYSE and SEC declined to comment on the filing. LaBranche also had no comment. The other specialist firms could not be reached for comment.
The job of specialist firms is to make a market in stocks assigned to them by matching buyers and sellers on the NYSE trading floor. The CalPERS suit contends that the specialist firms used their position to make stocks sales and purchases to their benefit, and that the NYSE failed to stop them.
Specifically, the firms are accused of failing to fill outstanding buy-and-sell orders at the best prices and routinely and unnecessarily intervened in trades, earning fees for themselves and the exchange at the expense of investors.
CalPERS officials charged that stock exchange officials hid the extent of the practices from investors. "Not only to the knowledge of, but with the active participation of, the NYSE, the specialist firms for years have engaged in wide-ranging manipulative, self-dealing, deceptive and misleading conduct," the suit said.
Five of the seven firms sued Tuesday were also identified in October by the NYSE as targets of an investigation into improper floor trading. At the time, the NYSE said it would discipline and seek tens of millions in fines against the firms - LaBranche, Bear Wagner, Spear, Leeds & Kellogg, Van Der Mollen and Fleetboston - for ignoring their primary duty to directly match buy and sell orders when possible and instead intervened from their own account for a profit.
California pension officials said they are seeking other private and institutional investors to join them in the lawsuit, explaining that it could potentially include all investors who traded at the New York Stock Exchange for the last five years.
