The 10b-5 Daily does not normally post about the initial filing of a securities class action (or that’s all it would have time to do), but sometimes an exception is warranted. The Associated Press reports that the California Public Employees Retirement System (CalPERS) has brought a class action suit against the New York Stock Exchange and seven specialist trading firms (who make a market in NYSE stock assigned to them by matching buyers and sellers). The suit alleges that the specialists failed “to fill outstanding buy-and-sell orders at the best prices and routinely and unnecessarily intervened in trades, earning fees for themselves and the exchange at the expense of investors” and that “stock exchange officials hid the extent of the practices from investors.”
CalPERS has issued a press release and posted the complaint on its website. The complaint alleges violations of Sections 10(b) and 20(a) of the Exchange Act and breach of fiduciary duty against all of the defendants and violation of Section 6(b) of the Exchange Act against the NYSE. CalPERS appears to rely heavily on information from a November 3, 2003 Wall Street Journal article discussing a confidential SEC report about NYSE trading practices and exchange oversight.
Quote of note (Associated Press): “‘We’re convinced, and we will seek to prove in court, that the New York Stock Exchange not only knew of these rampant problems, and knew they existed, but also perpetuated them,’ [Sean Harrigan, President of CalPERS] said. Officials said they decided to sue, rather than rely on the U.S. Securities and Exchange Commission, which is conducting its own investigation into floor-trading, because the SEC has not done its job.”
Addition: The Recorder has an article (via law.com – free regist. req’d) discussing CalPERS decision to hire Milberg Weiss to bring the suit.