Judge dismisses NYSE as defendant in specialists’ fraud lawsuit | VailDaily.com
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Judge dismisses NYSE as defendant in specialists’ fraud lawsuit

NEW YORK – The New York Stock Exchange was dismissed as a defendant Tuesday in three lawsuits accusing seven trading firms and the NYSE of fraudulently costing the nation’s largest public pension funds millions of dollars a year.U.S. District Judge Robert W. Sweet said he relied on reasoning in an earlier securities case in concluding the NYSE was entitled to the same immunity enjoyed by the Securities and Exchange Commission when it was performing duties assigned by the SEC.Sweet ruled in lawsuits brought on behalf of plaintiffs led by the California Public Employees’ Retirement System and Empire Programs Inc., a Saddle River, N.J. corporation. CalPERS is the nation’s largest public employee retirement system with over $166 billion in assets and nearly 1.4 million beneficiaries.The lawsuits by CalPERS and other huge public pension funds controlling hundreds of billions of dollars in nine states had alleged that the NYSE deliberately failed to supervise and discipline seven specialist firms. They sought unspecified damages.The specialists work on the floor of the stock exchange, controlling the purchase and sale of the 2,800 listed companies on the exchange. Sweet permitted the lawsuits to proceed against the specialists.The lawsuits alleged that the specialists had engaged in illegal practices, including manipulating stock trades so that they could trade their own accounts at favorable prices and falsifying weekly reports about their own trades.Sweet said the NYSE as a self-regulatory organization has the authority to regulate its members and to enforce its members’ compliance with securities laws, which give the SEC wide powers to discipline the NYSE should it discover wrongdoing.The judge said the 2nd U.S. Circuit Court of Appeals in Manhattan had established in earlier cases that the NYSE performs a variety of regulatory functions that otherwise would be performed by the SEC and thus should be given full immunity from lawsuits for money damages.”The NYSE’s alleged misconduct falls within the scope of its quasi-governmental authority,” Sweet wrote.A message left with a lawyer for the NYSE was not immediately returned.In March 2005, the SEC announced it had taken administrative action against the seven firms for securities rules violated from 1999 to 2003. It said the firms had agreed to settle, paying more than $240 million in penalties and disgorgement.In April 2005, a federal grand jury in Manhattan handed down criminal indictments against current and former individual specialists at the stock exchange. Those cases are still pending.In the civil lawsuits, the pension funds alleged that the NYSE and the specialists worked together to defraud investors trading on the exchange. They also claimed the NYSE helped specialists engage in improper trading and evade regulatory scrutiny.The lawsuits also said the NYSE deliberately failed to oversee its exchange or discipline its members for rules violations. They accused the NYSE of tipping off specialists to pending investigations and falsifying trading data it knew to be false.The lawsuit also accused the NYSE Division of Market Surveillance with helping the specialists identify incriminating documentation and advising them how to alter data to hide evidence of wrongdoing.The plaintiffs said the NYSE’s conduct was motivated by an interest in encouraging higher trading volume and increased trading fee revenue for NYSE to boost the value of NYSE seats, NYSE listings and levels of compensation for NYSE senior executives.On April 12, 2005, the NYSE announced it has settled with the SEC, consenting to making changes in its policies and accepting an order of censure by the SEC, the judge noted.Vail, Colorado


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