US – The largest US pension fund, CalPERS, is suing the New York Stock Exchange and seven trading firms over a fraud it says has “generated untold shareholder losses”.
The California Public Employees Retirement System said in a statement that has filed a suit in the US District Court against the NYSE and seven trading specialist firms “for jointly scheming to short change investors over the past five years in a trading fraud scheme so widespread it has generated untold shareholder losses”.
CalPERS said NYSE “purposefully allowed and specialist firms participated in the trade manipulations, enhancing profits to both and cheating investors out of the best prices for stock trades”.
“Although the NYSE has rules that prohibit these practices, the exchange rarely takes the appropriate level of action,” CalPERS said. A spokeswoman for the exchange said: “We do not comment on litigation.”
The fund wants the court to consolidate other class action lawsuits on this issue and designate CalPERS as the lead plaintiff on behalf of all harmed shareholders. CalPERS says that most of the companies within its 60 billion-dollar portfolio are traded on the NYSE.
"Our lawsuit alleges that the NYSE not only knew these rampant problems existed, but it perpetuated them, profited from them, and even hid the extent of the practices from investors," said CalPERS president Sean Harrigan.
"Obviously, the NYSE had every reason in the world to leave specialist firms alone, since specialists have seats on the exchange, and since management benefited financially through the type of huge compensation packages, such as was provided to Dick Grasso, who resigned from the exchange after his salary became public. The specialist trading practices are the poster child for failed regulation."
The action comes amid a probe at US securities exchanges by the Securities and Exchange Commission which has already seen former NYSE chairman quit on September 17.
Grasso’s replacement, former Citigroup chief John Reed, is currently pushing through plans to reform the exchange’s governance structure.