US pension fund Calpers has filed a class action lawsuit against the New York Stock Exchange and its specialist trading firms outlining allegations of widespread fraud and deceptive practices perpetrated over a five-year period.
The landmark suit follows Calpers successful campaign to eject former Nyse chairman Richard Grasso over his $188 million compensation package. It alleges that specialists, in conjunction with the NYSE, routinely engaged in "wide-ranging manipulative, self-dealing, deceptive and misleading conduct".
During the class period, between 1998 and 2003, Calpers says it purchased or sold approximately 3 billion shares of stock on the Nyse, mostly in large block trades through the specialist firms, "suffering millions of dollars of damage".
At a news conference, Calpers president Sean Harrigan said: "We intend to seek recovery of every single dollar lost." The pension fund is looking to expand the suit into a class action case involving potentially millions of investors, and is demanding changes to the trading systems deployed at the Nyse.
The suit outlines sharp practices allegedly employed by specialists to line their own pockets ahead of investors, including freezing price displays, front-running and inter-positioning.
The firms named in the suit include LaBranche & Co; Van der Moolen, Spear Leeds & Kellogg, Fleet Specialist, Bear Wagner Specialists, Susquehanna Specialists and Susquehanna International Group, and Performance Specialist Group.
The lawsuit follows an SEC invesitgation into trading at the Nyse which painted a picture of a floor-trading system riddled with abuses, "with firms routinely placing their own trades ahead of those by [public investors]".