Wednesday, June 07, 2006

CalPERS appeals dismissal of NYSE suit

According to this article from BusinessWeek, co-lead plaintiffs, the California Public Employees' Retirement System (CalPERS) and Empire Programs, Inc. have appealed the dismissal of their claims against the NYSE last December by Judge Robert Sweet in the In re NYSE Specialists Securities Litigation. Judge Sweet's opinion is available here.

Judge Sweet had ruled that:
NYSE has absolute immunity with respect to Plaintiffs' Section 6(b), Section 20(a), Section 10(b) fraudulent scheme, and state law fiduciary duty claims, all of which are based on NYSE's failure to adequately monitor the conduct of the Specialist Defendants.
According to the article, Plaintiffs are arguing on appeal:
The NYSE steps outside its legitimate regulatory capacity and function when it orchestrates a fraud on investors, and those investors have standing to sue for false statements misrepresenting the very market on which they were induced to trade.
CalPERS is represented in the litigation by Lerach Coughlin Stoia Geller Rudman & Robbins LLP while Empire Programs is represented by Lovell Stewart Halebian LLP.

As a result of the specialist scandal, all seven NYSE specialist firms were fined by the SEC. The exchange itself was also censured by the SEC over its failure to police the specialists. A number of individual former traders have been indicted on fraud charges stemming from the case and two have pleaded guilty.

One interesting sidenote to the litigation. One of the lead plaintiffs, Empire Programs, is currently involved in litigation with Sea Carriers, a now-defunct Connecticut-based trading company over payments to be made as a result of the nearly $250 million in disgorgement and civil penalties paid by the specialist firms to settle litigation with the SEC.

The SEC's Order Approving a Distribution Plan, available here, describes the Empire / Sea Carriers litigation at length.

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