Ex-Partner Sues Archipelago
Seeking Millions in Damages
By GREG IP
Staff Reporter of THE WALL STREET JOURNAL
August 10, 1999
Archipelago LLC, a fledgling electronic stock exchange with big-name investors, and its founder have been sued by a former business partner who alleges he was unfairly cut out of the business.
Fane Lozman, a Chicago derivatives trader, filed the suit in a Cook County, Ill., circuit court Monday, seeking monetary relief and a restraining order against Archipelago's chief executive, Gerald Putnam, and his co-defendants from participating in an initial public offering of the company. The suit was filed the same day Archipelago says it filed an application with the U.S. Securities and Exchange Commission for registration as a stock exchange.
Archipelago is an electronic-communications network, or ECN, a quasi-stock exchange that electronically displays and executes investors' orders. It is one of a growing group of trading systems challenging the New York Stock Exchange and Nasdaq Stock Market. Mr. Putnam said that in its filing with the SEC, Archipelago said it intends to offer trading 24 hours a day, seven days a week, and also to list companies.
Mr. Putnam has also said he expects at some point to take the company public. He said the company had $37 million in revenue during the first seven months of the year, and trades about 25 million shares a day.
In his suit, Mr. Lozman alleges he was partners with Mr. Putnam in an earlier venture to develop an electronic-trading business and related technology that later were used in a day-trading concern Mr. Putnam founded called Terra Nova Trading LLC of Chicago and in Archipelago.
In the suit, he alleges Mr. Putnam, and his co-defendants, Terra Nova, Archipelago and Townsend Analytics Ltd., another founding shareholder of Archipelago, wrongfully denied Mr. Lozman "proceeds and benefits" from the business opportunities he says he helped create.
The suit notes that this year, Archipelago's Chicago parent, Archipelago Holdings LLC, has received investments from Goldman Sachs Group Inc., E*Trade Group Inc., J.P. Morgan & Co., mutual-fund manager American Century Cos. and Reuters Group PLC's Instinet Corp., an ECN operator. Mr. Lozman's attorney, Philip Nathanson, said these investments total more than $100 million, and based on that and on Archipelago's revenue, he believes his client is owed from tens of millions to hundreds of millions of dollars.
Kevin O'Hara, in-house counsel for Archipelago, said he hadn't seen the suit. Based on a summary of its contents, he said, "I'm certain we'll deny all allegations and put up a vigorous defense." Mr. Putnam said, "There's no merit to this suit." Ted Helwig, an attorney for Terra Nova, said he couldn't comment because he hadn't seen the suit. A person at Townsend's Chicago office said no one was there who could comment.
In early 1998, Mr. Putnam, Terra Nova, Archipelago and one of Townsend's executives were sued by Chicago futures trader Lewis J. Borsellino. In a suit also filed in a Cook County circuit court, Mr. Borsellino alleged that they wrongly took the technology and business plan of a shared venture with him to start competing businesses, namely Terra Nova and Archipelago. A lawyer for Mr. Borsellino said that the suit was settled last year and that the settlement is subject to a confidentiality agreement. |
