Five Specialists Agree to $240 Million Settlement
Updated from 9:40 a.m. EST
The five biggest
New York Stock Exchange
specialist firms tentatively agreed to pay a total of $240 million to settle an
SEC
probe into insider practices that allegedly allowed them to profit at the expense of ordinary investors.
The companies are
LaBranche
(LAB)
;
FleetBoston
undefined
;
Bear Stearns'
(BSC)
TheStreet Recommends
Bear Wagner venture;
Goldman Sachs'
(GS) - Get Goldman Sachs Group, Inc. Report
Spear Leeds; and
Van Der Moolen
(VDM)
.
News of the settlement comes about a month after LaBranche and Van Der Moolen
said they had received so-called Wells notices from the SEC, which indicated a civil enforcement action was imminent. The SEC had more broadly stated in October that it intended to punish the firms for practices including front-running, in which specialists trade for their own account with knowledge of market-moving orders.
The deal must still be approved by the SEC's top commissioners, but details began to leak out early Wednesday morning.
In a press release Wednesday morning, LaBranche confirmed the tentative deal with the SEC. The firm said it would pay a total of $63.5 million in restitution to customers and civil penalties for "certain trades that occurred during the five-year period from 1999 to 2003." In a regulatory filing, Van Der Moolen said it would pay between $51.8 million and $57.7 million. Van Der Moolen noted that the SEC attorneys conducting the investigation favor the firm paying the higher amount.
The alleged schemes are the basis of a suit brought in December by the $138 billion California Public Employees Retirement System. The suit -- which could be bolstered by the settlement -- seeks to return millions, or even billions, of dollars to investors, reflecting the dollar amount of the illicit gains, the system alleges.
Unlike on the
Nasdaq
, where trading is carried out electronically, the NYSE relies on an auction system for buying and selling stocks in which specialists are supposed to facilitate an orderly market. The system came under fire following the ouster of former Big Board Chairman Richard Grasso in a pay scandal.
