From The New York Times 1997-12-25 edition.
And for those that think their Brokerage firm and Market Makers are not
pulling strings on the OTC stocks such as AWLT and others.
Everyone must call every share of AWLT in NAME form. Those with IRA's must
demand that your brokerage firm submit your IRA shares of RMIL into FBO
(Custodial account NAME form)!
This is war people!
Riley G
---------------------
December 25, 1997
Brokerage Firms Agree to $900 Million Settlement in Nasdaq Case
By DAVID BARBOZA
NEW YORK -- Thirty brokerage firms, including some of the biggest and most
trusted names on Wall Street, agreed Wednesday to pay about $900 million to
end a civil suit contending they schemed with one another for years to fix
prices on the Nasdaq stock market.
Lawyers for the plaintiffs in the class-action lawsuit, which represented
tens of thousands of investors, called it the biggest settlement of a
price-fixing lawsuit in history.
The settlement, also one of the biggest ever in the history of U.S.
financial markets, was distinctive because most investor complaints about
Wall Street cheating historically have focused on theft and fraud, not
collusion among competing brokers to fix prices of stocks.
"The size of the settlement indicates that the allegations made were pretty
serious," said Alan Bromberg, an expert is securities law at Southern
Methodist University. "This is the first time antitrust law has been used
in the securities area in a major way."
While the settlement is huge, it is not expected to seriously affect the
earnings of any of the brokerages. Investors also need not worry because
reforms instituted in recent years have addressed the pricing practices on
the Nasdaq market.
None of the defendants in the settlement, which included Merrill Lynch,
Goldman Sachs and Morgan Stanley, Dean Witter Discover & Co., admitted
wrongdoing.
Their payments boosted the total amount paid by brokerage firms to more
than $1 billion since 1994, when lawyers representing a group of investors
first brought the suit. That includes a $98 million settlement paid a year
ago by six other firms facing similar accusations.
The total amount of the settlement is not far behind the $1.5 billion paid
out by Prudential Securities for defrauding hundreds of thousands of
investors in the sale of limited partnerships.
But because the price-fixing settlement sum was spread among more than 30
brokerages, no single firm's total approached the Prudential figure.
Merrill Lynch, which will pay the highest amount because the firm's trading
accounted for the largest share of the Nasdaq market, will contribute about
$100 million.
The plaintiffs had contended that between 1989 and 1994 a large portion of
the stock trading done via the Nasdaq market was manipulated by brokers,
who inflated the spreads, or the difference between the price stocks are
bought and sold, in order to reap higher trading profits.
"They did it on the buy side and they did it on the sell side," said Robert
Skirnick, an attorney for the plaintiffs. "Whether you were buyer or a
seller you were damaged."
For instance, if an investor asked to buy shares at $20.125, a broker might
return with shares bought at $20.25 saying the shares were unavailable at
the cheaper price. The broker would then pocket the difference. In deals
where hundreds of thousands of shares were traded, that spread of 12.5
cents could be a large sum of money.
The plaintiffs sought to show that brokers priced shares that typically
would give them a 12.5 cent profit on each share traded. If a broker listed
a price too cheaply, Skirnick said, that broker would be pressured by
competitors.
"They would call the other guy and say, 'You stupid market maker, you're
wrecking the market,' " Skirnick said.
A year ago, about 24 Wall Street firms settled similar Nasdaq price-fixing
charges with the Justice Department by agreeing to forbid certain pricing
practices and enhance regulatory oversight.
At about the same time, the Securities and Exchange Commission sanctioned
the National Association of Securities Dealers -- which operates the Nasdaq
market -- for oversight and regulatory lapses. SEC officials also said they
were continuing to investigate practices in Nasdaq. Since then, a number of
reforms have been made.
Concerns first surfaced in the early 1990s about trading practices on
Nasdaq, a national network of brokers linked together via telephone and
computer terminal hookups that has mushroomed in size in recent years to
become the second-largest stock market behind the New York Stock Exchange.
Once known as the "over the counter" market because many of its stocks are
so small, Nasdaq is now more commonly regarded as home to celebrity stocks
that have become household names in the current bull market -- names like
Microsoft, Intel and MCI. But the mechanics of how these stocks are bought
and sold are not widely understood outside of the securities industry.
The genesis of the lawsuit came in a study released in May 1994 by two
academics, William Christie at Vanderbilt University and Paul Schultz at
Ohio State, titled, "Why Do Nasdaq Market Makers Avoid Odd-Eighth Quotes?"
The study found that in 1991, market makers were fixing the trading costs
at higher than competitive levels in some of the largest Nasdaq stocks,
thereby inflating their profits.
The study attracted a flurry of press attention, and eventually led lawyers
to initiate a class-action antitrust suit on behalf of investors who the
lawyers claim were victimized. Federal investigations followed.
If a federal judge agrees to the terms of Wednesday's settlement, the
payments would be placed in an interest bearing escrow account and then be
paid out to investors beginning in 1999, lawyers for the plaintiffs said.
That means almost any investor who bought or sold shares on the Nasdaq
market -- and that figure could be well into the millions -- may be
reimbursed in the future.
But exactly how much an investor might receive would depend on how much
trading the investor did. Lawyers still must devise a formula for
determining investor compensation, and a judge must still determine how
plaintiff lawyers will be paid.
Altogether, more than 1,600 different securities were affected by
price-fixing practices, plaintiff lawyers said.
The settlement document makes clear that the Wall Street firms continue to
deny the accusations of wrongdoing in the lawsuit. Most defendants declined
to comment beyond that. Nasdaq also declined to comment.
But Merrill Lynch issued a statement that read: "Although we believe our
practices were entirely proper, it made no sense to continue litigating the
merits of practices that are no longer followed when the matter could be
resolved on an industry-wide basis."
The settlement amount, while huge, is not expected to put even a minor dent
in the collective profits of Wall Street brokerages, which are enjoying
another banner year from the bull market.
The shares of most Wall Street firms -- among the most bullish stocks
themselves this year -- fell only modestly in a shortened Christmas Eve
trading session Wednesday.
Among the law firms representing the investors in the class action suit
were Fine, Kaplan and Black in Philadelphia; Lovell & Stewart in New York;
Milberg Weiss Bershad Hynes & Lerack in New York, and Meredith Cohen
Greenfogel & Skirnick in New York.
One Wall Street firm, however, refused to join the settlement. BancAmerica
Robertson Stephens, based in San Francisco, said it had no reason to
believe it engaged in price fixing.
Attorneys for the investors said they would press ahead with the case
against BancAmerica Robertson Stephens.
================================
The Brokers That Settled
Here are the brokerage firms that agreed yesterday to settle an investors'
class-action lawsuit contending they fixed prices on the Nasdaq stock
market. Where available, the approximate amounts they reportedly will pay
are shown. A total of $910 million is to be paid by these brokerages, but
no firm-by-firm breakdown has been released; figures here were compiled
from Reuters and Bloomberg News reports.
The suit originally named 37 firms as defendants. Six settled earlier,
agreeing to pay $98 million in all, and are not shown here. Thirty settled
yesterday and are listed here; firms that have merged since the suit was
filed are listed only once, under the merged name. The last of the original
37, BancAmerica Robertson Stephens, has not settled.
Firm: Penalty Assessed
Merrill Lynch - $100 million
Lehman Brothers - 80 million
Goldman, Sachs - 75 million
Salomon Smith Barney* - 70 million
Morgan Stanley, Dean Witter, Discover* - 65 million
Troster Singer - 55 million
Paine Webber Group - 50 million
Mayer & Schweitzer - 46 million
Prudential Securities - 40 million
Bear Stearns - 40 million
Credit Suisse First Boston - 40 million
BT Alex. Brown - 35 million
Donaldson, Lufkin & Jenrette - $25 million
Hambrecht & Quist - 20 million
Oppenheimer & Co. - 15 million
Olde Discount - 10 million
Robinson-Humphrey - 10 million
Less Than $10 Million Each -
J.C. Bradford; A.G. Edwards; Furman Selz; Legg Mason; J.P. Morgan
Securities; Nash, Weiss & Co.; UBS Securities
Amount To Be Paid Not Available -
Cowen & Co.; Everen Securities; Piper Jaffray; Weeden & Co.
*Merger of two original defendants. |
