Thought this to be interesting:
Nasdaq Dealers and 100 Traders
Face SEC Case Over Violations
By ANITA RAGHAVAN and MICHAEL SCHROEDER
Staff Reporters of THE WALL STREET JOURNAL
Nearly three dozen Wall Street securities firms have begun preliminary
settlement discussions with the U.S. Securities and Exchange Commission
over alleged trading violations in the past on the Nasdaq Stock Market.
The SEC has already been telling the firms and more than 100 traders -- a
higher number than originally expected -- that it is preparing civil charges
against them. The talks, while in the early stages, could lead to an
industrywide SEC settlement over disciplinary cases stemming from the
SEC and Justice Department investigations begun in 1994 over alleged
price manipulation by dealers on Nasdaq.
Nasdaq's Trouble
May 1994: Study from two finance professors suggests Nasdaq
dealers "tacitly collude" on prices.
October and November 1994: The Justice Department and the
SEC launch probes into Nasdaq dealers and their self-regulator, the
National Association of Securities Dealers.
July 1996: 24 firms agree to beef up oversight of Nasdaq desks in
settlement with Justice Department
July 1998: Nearly three dozen Wall Street securities firms have
begun preliminary settlement discussions with the SEC over alleged
trading violations on Nasdaq.
This is the first time that Wall Street firms have discussed a settlement of
the Nasdaq matter with the SEC.
The SEC and U.S. Justice Department probe, started in 1994, yielded
thousands of hours of taped conversations between Nasdaq traders upon
which the SEC has built its cases, people familiar with the situation say.
First Set of Fines
The settlement talks, if successful, are likely to result in Wall Street forking
over its first set of fines to settle regulators' allegations of trading violations
on the Nasdaq market. The firms have, however, agreed to pony up more
than $1 billion in total in a settlement made in December of class-action
litigation on behalf of investors who said they were overcharged in the
Nasdaq market.
While Wall Street reached a settlement in 1996 with the Justice
Department, the accord was more injunctive in nature, requiring securities
firms to beef up oversight of their trading desks but falling short of
imposing fines on Nasdaq dealers.
Among the firms that the SEC has held settlement discussions with are
Merrill Lynch & Co., the nation's biggest brokerage firm; Morgan Stanley
Dean Witter & Co.; PaineWebber Group Inc.; Warburg Dillon Read,
formerly known as UBS Securities Inc.; and Charles Schwab Corp.'s
Mayer & Schweitzer Inc. unit.
Spokesmen at the firms declined to comment. The SEC also declined to
comment.
Although the SEC hasn't sent out so-called Wells notices, formally
notifying traders that they are about to be charged, the commission has
been briefing Wall Street lawyers in recent weeks on the cases against the
individual traders and the firms, people familiar with the situation say.
It was reported earlier this year in The Wall Street Journal that the SEC
was planning civil charges against dozens of traders, but the recent
briefings and preliminary settlement talks suggest that the SEC is ready to
file civil charges against the Nasdaq traders and Wall Street firms.
It's unclear at this stage if the settlement talks will actually yield an accord
or result in litigation, these people say. Any accord, they say, is likely to
result in securities firms paying fines, ranging from a couple of hundred
thousand dollars to between $5 million and $10 million, depending on the
firm.
The SEC has been informing each firm about its liability, and, people
familiar with the situation say, PaineWebber and Warburg Dillon Read,
formerly UBS, are two of the Wall Street securities firms that have a
bigger exposure than most rank-and-file firms and could be subject to the
heftiest fines. Both firms declined to comment.
Fate of Individual Traders
One of the main issues that the SEC and the Wall Street securities firms
are tussling over is the fate of the individual traders. The SEC is seeking
30-day, 90-day and, in some cases, lifetime suspensions for individual
traders, these people say. But Wall Street firms have been battling such
suspensions, arguing that it would be career-killing, these people say. In
addition, it appears that Wall Street firms would hold out for the SEC not
to name any individual traders as part of an accord with the commission,
these people say.
The SEC's two-year probe into Nasdaq dealers resulted in the publication
of a 157-page supplemental report that shed light on trading practices in
the Nasdaq Stock Market. The so-called 21(a) report, chock full of
conversations among Nasdaq traders, both to one another and in sworn
testimony, offered instances of traders coordinating their price quotations
in a bid to fix prices on Nasdaq.
In one tape transcript, one trader holding a position in a stock in spring
1994, Parametric Technology, asked another to move up his bid -- what
he will pay for it -- to 1/4 point above the selling price. At one point in the
conversation between the two traders, the second trader admitted to
"goosing [the stock], cuz." To which the first trader replied: "Thank you."
In another tape transcript, two traders unwittingly predicted what many
traders say is the result of the SEC's investigation and the remedies it is
forcing on the National Association of Securities Dealers. "It's the end of
your profits," one trader laments to another, explaining that publicity about
wide Nasdaq trading spreads forced his firm to narrow them. "If you make
600 a month, you gonna make 400 a month."
The talks with the SEC come just two years after two dozen securities
firms agreed to random taping of conversations on over-the-counter
trading desks and stepped up monitoring of these conversations as part of
an accord with the Justice Department.
The discussions also follow an accord the SEC reached with the NASD in
August 1996 that called for the NASD to spend $100 million over five
years to prevent abuses on Nasdaq. The 21(a) report was issued in
conjunction with that settlement. |
