The complaint alleges that Defendants (the NYSE and the Specialist Firms) have violated the Exchange Act of 1934, the rules of the Securities and Exchange Commission (SEC) and the rules of the NYSE in connection with the purchase or sale of securities on the NYSE. Specifically, the complaint alleges that with the active participation of the NYSE, the Specialist Firms for years have routinely engaged in wide-ranging manipulative, self-dealing, deceptive and misleading conduct. These practices include, without limitation: (i) "inter-positioning" in violation of the Specialist Firms' "negative obligation," where a Specialist Firm "steps in the way" of matching orders of public sellers and/or buyers of stock in order to "penny jump," to profit to the detriment of Class members; (ii) "front-running" or "trading ahead," where Specialist Firms take advantage of their confidential knowledge of public investors' orders, including, without limitation "open," "market," "limit," "stop," "stop/limit," "buy minus," "sell plus" and "sell short" orders (collectively "Public Orders"), that will have an impact on the price of a stock and trade for their own account as principals before completing orders placed by public investors; and (iii) "freezing" the Specialist Firm's book, where a Specialist Firm freezes its Display Book on a stock so it can first engage in trades for its own account prior to entering and then executing public investors' orders, thus facilitating their manipulative "front-running" and "inter-positioning" activities.
The complaint further alleges that throughout the Class Period, Defendants misrepresented that the Specialist Firms were substantially complying with the NYSE's rules and the Exchange Act, and that the NYSE was effectively overseeing its members, including the Specialist Firms, while conducting the business of the NYSE in accordance with the Exchange Act, its own and the SEC's rules. In addition, Defendants failed to disclose that NYSE orders were not being filled at the best available prices, but, in fact, were being manipulated for Defendants' benefit in violation of NYSE rules designed to protect public investors, while misrepresenting that the NYSE was an honest and fair exchange where just and equitable principles of trade were followed and, due to the Specialist Firms' honest maintenance of auction markets in the stocks listed and traded on the NYSE, as fiduciaries to public investors, those investors were being treated fairly and protected by an exchange with rules and an oversight system effective to protect public investors.
The Specialist firms named in the complaint are listed below:
LaBranche & CO., INC.,
LaBranche & CO. LLC,
George M.L. LaBranche, IV,
Bear Wagner Specialists LLC,
Spear, Leeds & Kellogg Specialists LLC,
Spear, Leeds & Kellogg, LP,
The Goldman Sachs Group, Inc.,
Van Der Moolen Specialists Usa, LLC,
Van Der Moolen Holding N.V.,
Fleetboston Financial Corporation,
Fleet Specialist, Inc.,
Performance Specialist Group, LLC,
Susquehanna Specialists, Inc. and
Susquehanna International Group, LLP
According to a press release dated January 2, 2006, the U.S. District Court for the Southern District of New York Dec. 12 dismissed on immunity and other grounds investor charges against the New York Stock Exchange based on the alleged misconduct of seven NYSE specialist firms (In re NYSE Specialists Securities Litigation, S.D.N.Y., 03 Civ. 8264 (RWS), 12/12/05). The court also concluded that state law claims of fiduciary breaches against all of the defendants were preempted by the 1998 Securities Litigation Uniform Securities. However, some of the securities claims against the specialist defendants were allowed to proceed. In an opinion by Judge Robert W. Sweet, the court explained that the lawsuit was brought on behalf of public investors who traded NYSE-listed securities during the class period--Oct. 17, 1998 to Oct. 15, 2003--for which specialist firms were responsible for maintaining the trading market.
On February 17, 2006 Clerk’s Judgment dismissing the claims against defendant NYSE. On March 2, 2006, the plaintiffs filed a notice of appeal from the December 13, 2005 Memorandum and Opinion.
In an article dated September 18, 2007, an appeals court has put the New York Stock Exchange back on the hook for its alleged role in a massive trading scandal that embroiled major investment houses last year. In a long-awaited order Tuesday, the U.S. Court of Appeals for the Second Circuit ruled that while the NYSE enjoyed absolute immunity for any regulatory failures, the shield did not extend to allegations that the exchange had misled traders about the market's integrity. The unanimous ruling overturns in part a December 2005 order by the U.S. District Court for the Southern District of New York dismissing all claims brought by investors against the world's largest stock exchange.
According to an article dated March 24, 2008, an appeals court decision granting the New York Stock Exchange immunity from certain allegations made by the California Public Employees' Retirement System will stand, after the U.S. Supreme Court refused to hear the case. The Supreme Court declined the case on Monday. The justices will not determine whether pension funds' claims that NYSE failed to properly regulate specialized trading firms should be reinstated. The U.S. Court of Appeals for the Second Circuit tossed the allegations last September, allowing part of the lawsuit to proceed, but ruling that in certain instances the exchange is immune. While NYSE enjoys absolute immunity for any regulatory failures, the shield did not extend to allegations that the exchange misled traders about the market's integrity, the court said. The unanimous ruling overturned in part a December 2005 order by the U.S. District Court for the Southern District of New York. The district court had dismissed all claims brought by investors against the world's largest stock exchange for allegedly aiding, and in some cases encouraging, seven investment banks in a multimillion-dollar fraudulent self-trading scheme.
On September 29, 2009, the defendant New York Stock Exchange, Inc. filed a renewed motion to dismiss the Amended Complaint.
On April 14, 2010, a Stipulation of Partial Settlement was filed. According to the Stipulation, it is hereby stipulated and agreed by and between the parties that subject to the approval of the Court, the Litigation and the Released Claims shall be finally and fully compromised, settled and released, and the Litigation shall be dismissed with prejudice, as to all Settling Parties, upon and subject to the terms and conditions of the Stipulation, as set forth in this stipulation. The NYSE and its counsel, Fried, Frank, Harris, Shriver & Jacobson LLP, will reasonably cooperate with Plaintiffs in their continued prosecution of their claims against the Specialists Defendants in the Litigation.
On May 15, 2013, a Notice of Pendency and Settlement of Class Action was issued detailing the nature of the settlement.