Nasdaq investors may share in $930 million from brokers 31 firms in talks toward settlement of price-collusion case

Securities industry

December 20, 1997|By BLOOMBERG NEWS

NEW YORK -- Thirty-one brokerages are in talks to pay up to $930 million to investors to settle a class-action lawsuit that claimed the firms colluded to set prices artificially high on the Nasdaq stock market, say lawyers involved in the negotiations.

The discussions, which could result in a preliminary agreement within days, would raise the overall settlement agreed to by brokerages to more than $1 billion. Such an agreement would be one of the largest antitrust payments ever in a civil lawsuit.

"The evidence is strong to support the conclusion that never before in history of stock trading have so few people taken so much money from so many," said plaintiffs' attorney Robert Skirnick, a partner with the law firm of Meredith, Cohen, Greenfogel & Skirnick in New York.

Among the 31 firms involved in the talks to settle the lawsuit are Merrill Lynch & Co., Credit Suisse First Boston, PaineWebber Group Inc. and Goldman Sachs Group LP. Spokesmen for the firms either declined to comment or weren't immediately available.

Meanwhile, the SEC is preparing civil charges against dozens of individual traders for allegedly collaborating to keep prices artificially high, the Wall Street Journal reported yesterday. Hundreds of traders are under investigation, PaineWebber Inc. President Joseph Grano said earlier this week.

The SEC's inquiry follows the commission's censure last year of the National Association of Securities Dealers, which runs Nasdaq, for allowing dealers to collaborate on prices. NASD neither admitted nor denied wrongdoing.

Six brokerages -- including Herzog, Heine, Geduld Inc.; Montgomery Securities, a unit of NationsBank Corp.; and Cantor Fitzgerald LP -- have agreed to pay a total of $98.9 million to settle investor complaints. The lawsuit was filed against 37 brokerages in federal court in New York in 1994. About five small and mid-size firms haven't decided yet whether to become part of the class-action settlement or to challenge the suit individually, said two lawyers involved in the talks and a brokerage employee. If these firms opt out, the settlement could be reduced to about $900 million, they said.

The amount each brokerage will pay has been determined by a formula that takes into account the firm's portion of the 37 defendants' total Nasdaq share. Plaintiffs' attorneys also wanted overall payout of at least $1 billion to set a new mark for civil antitrust settlements.

The complaint alleged that perhaps several million investors lost hundreds of millions of dollars because of collusion among the JTC securities firms between 1989 and 1994. This collusion caused an artificial widening of spreads -- the difference between the prices at which stocks are bought and sold, representing part of the firm's profit.

In a separate case, 24 of these firms settled similar Justice Department charges last year by agreeing to tape-record some of their traders' calls and take other steps to protect investors. The brokerages neither admitted nor denied wrongdoing. SEC investigators are using tapes gathered during this earlier investigation.

Lawyers for the 31 firms and the plaintiffs' attorneys were meeting yesterday to discuss a draft settlement. While an agreement could be reached, it is not likely to be announced until the middle of next week or the week after, the lawyers and brokerage employee said.

A settlement would require approval from a U.S. judge in Manhattan, and investors would have the opportunity to opt out and seek separate claims.

The five firms that haven't decided whether to join the settlement could face higher payouts if they challenge the complaint.

Other firms in the settlement talks are: Alex. Brown Inc.; Morgan Stanley & Co.; A. G. Edwards Inc.; Kemper Securities Group; J. C. Bradford Weeden & Co.; Robertson, Stephens & Co.; Cowen & Co.; Bear Stearns & Co.; Dean Witter Reynolds Inc.; Donaldson, Lufkin & Jenrette Inc.; Furman Selz Hambrecht & Quist; J. P. Morgan Securities Corp.; Lehman Brothers Inc.; Mayer & Schweitzer Inc.; Nash, Weiss & Co.; Olde Discount Corp.; Piper Jaffray Inc.; Prudential Securities; Salomon Brothers Inc.; Legg Mason Inc.; Troster Singer; Smith Barney Inc.; and UBS Securities Corp.

Pub Date: 12/20/97

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