Risk & Compliance

Specialist Firms Settle with NYSE

A $240 million settlement reportedly awaits approval by the Securities and Exchange Commission.
Ed ZwirnFebruary 19, 2004

The five biggest trading firms on the New York Stock Exchange have reportedly agreed to pay $240 million to settle charges that they improperly handled client trades and skimmed profits, shortchanging investors by at least $155 million.

The settlement will be presented for formal approval on Thursday to William Donaldson, chairman of the Securities and Exchange Commission, when he is scheduled to meet with the other four members of the commission, according to CNNfn.

The agreement would cap more than five months of investigations and wide-ranging criticism during which the firms — Van der Moolen; LaBranche & Co.; Fleet Specialist (a unit of FleetBoston Financial Corp.); Bear Wagner Specialists (Bear Sterns Cos.); and Spear, Leeds & Kellogg (Goldman Sachs Group) — have been accused of engaging in a variety of self-dealing at the expense of brokerage clients.

LaBranche, the Big Board’s largest share dealer, issued an announcement Wednesday saying it agreed to pay $63.5 million to settle allegations while neither admitting nor denying wrongdoing. According to the announcement, the payment includes $41.6 million of restitution and $21.9 million in civil penalties for trades occurring during the five years from 1999 to 2003.

LaBranche’s Dutch-owned rival, Van der Moolen, issued a statement early Wednesday confirming the agreement in principal and stating that its share of the fine would be between $51.8 million and $57.7 million. The firm added that the final amount of the fine had yet to be determined.

In December, the California Public Employee Retirement System — whose $60 billion portfolio makes it one of the country’s largest institutional investors — sued the specialist firms and the NYSE. Calpers claimed that they conspired and “routinely engaged in wide-ranging manipulative, self-dealing, deceptive and misleading conduct.” Rather than acting as impartial facilitators of stock transactions, Calpers added, the specialists engaged in “front running” — artificially bidding up stocks, charging more to the buyer, and pocketing the difference.

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