US pension fund giant sues NYSE in $1bn fraud claim

The New York Stock Exchange is facing a legal claim that it helped traders defraud investors of more than $1bn (£540m).

A group of fund managers, led by California's giant state pension fund, Calpers, has launched an attempt to hold the NYSE to account for abuses by the traders - known as "specialists" - over a five-year period to 2003.

Until the financial watchdog, the Securities and Exchange Commission (SEC), cracked down, specialists regularly traded for their own profit before they fulfilled buy or sell orders from clients. Calpers claims the NYSE not only knew the trading floor was riddled with such abuses but even encouraged them - and it is demanding damages of hundreds of millions of dollars from the exchange.

The claim comes at a sensitive time for the NYSE, which is planning a cash-and-share deal to merge with the pan-European stock market, Euronext, and is hoping to splash out on further acquisitions.

Last year, the NYSE was censured by the SEC for "failing to enforce compliance with the federal securities laws and NYSE rules which prohibit specialists from 'interpositioning' and 'trading ahead' of customer orders".

In 2004, the SEC fined the seven specialist firms more than $245m. Since then, their profitability has collapsed.

Calpers is a $200bn pension fund and one of the largest single investors in the US. It launched a class action against the seven firms and the NYSE in December 2003, but the NYSE was dismissed from the suit last year. A judge ruled the exchange was immune from being sued over its regulatory decisions. But Calpers' lawyers have filed an appeal. In court papers, they argue: "NYSE officials falsely assured investors that they were operating a fair and orderly market. This simply was not true."

In the past few days, they have also received documents and electronic records from the specialist firms and are beginning to sift through data on millions of trades that might have violated stock exchange rules.

The NYSE said that it does not comment on ongoing litigation.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksA special investigation by Andy McSmith
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

SThree: Recruitment Resourcer

£20000 - £21000 per annum + uncapped commission: SThree: As a graduate you are...

Ashdown Group: Junior Application Support Analyst - Fluent German Speaker

£25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...

Recruitment Genius: Customer Service Advisor

£15000 - £16000 per annum: Recruitment Genius: A Customer Service Advisor is r...

Ashdown Group: Trainee Consultant - Surrey / South West London

£22000 per annum + pension,bonus,career progression: Ashdown Group: An establi...

Day In a Page

Syrian conflict is the world's first 'climate change war', say scientists, but it won't be the last one

Climate change key in Syrian conflict

And it will trigger more war in future
How I outwitted the Gestapo

How I outwitted the Gestapo

My life as a Jew in wartime Berlin
The nation's favourite animal revealed

The nation's favourite animal revealed

Women like cuddly creatures whilst men like creepy-crawlies
Is this the way to get young people to vote?

Getting young people to vote

From #VOTESELFISH to Bite the Ballot
Poldark star Heida Reed: 'I don't think a single bodice gets ripped'

Poldark star Heida Reed

'I don't think a single bodice gets ripped'
The difference between America and Israel? There isn’t one

The difference between America and Israel? There isn’t one

Netanyahu knows he can get away with anything in America, says Robert Fisk
Families clubbing together to build their own affordable accommodation

Do It Yourself approach to securing a new house

Community land trusts marking a new trend for taking the initiative away from developers
Head of WWF UK: We didn’t send Cameron to the Arctic to see green ideas freeze

David Nussbaum: We didn’t send Cameron to the Arctic to see green ideas freeze

The head of WWF UK remains sanguine despite the Government’s failure to live up to its pledges on the environment
Author Kazuo Ishiguro on being inspired by shoot-outs and samurai

Author Kazuo Ishiguro on being inspired by shoot-outs and samurai

Set in a mythologised 5th-century Britain, ‘The Buried Giant’ is a strange beast
With money, corruption and drugs, this monk fears Buddhism in Thailand is a ‘poisoned fruit’

Money, corruption and drugs

The monk who fears Buddhism in Thailand is a ‘poisoned fruit’
America's first slavery museum established at Django Unchained plantation - 150 years after slavery outlawed

150 years after it was outlawed...

... America's first slavery museum is established in Louisiana
Kelly Clarkson: How I snubbed Simon Cowell and become a Grammy-winning superstar

Kelly Clarkson: How I snubbed Simon Cowell and become a Grammy-winning superstar

The first 'American Idol' winner on how she manages to remain her own woman – Jane Austen fascination and all
Tony Oursler on exploring our uneasy relationship with technology with his new show

You won't believe your eyes

Tony Oursler's new show explores our uneasy relationship with technology. He's one of a growing number of artists with that preoccupation
Ian Herbert: Peter Moores must go. He should never have been brought back to fail again

Moores must go. He should never have been brought back to fail again

The England coach leaves players to find solutions - which makes you wonder where he adds value, says Ian Herbert
War with Isis: Fears that the looming battle for Mosul will unleash 'a million refugees'

The battle for Mosul will unleash 'a million refugees'

Aid agencies prepare for vast exodus following planned Iraqi offensive against the Isis-held city, reports Patrick Cockburn