Originally created 12/20/97

Probe may result in charges

WASHINGTON -- Federal regulators' ongoing investigation of alleged price rigging on the Nasdaq Stock Market reportedly could result in civil charges against dozens of traders, while big Wall Street firms are negotiating a $900 million settlement with investors.

While not confirming a report that the Securities and Exchange Commission is preparing charges against dozens of traders as part of its Nasdaq probe, SEC Enforcement Director William McLucas said Friday, "We have been continuing our investigation."

The agency's main concerns are "to get the facts, to get it right and that the process is fair," Mr. McLucas said in a telephone interview.

But a critic said the deal being negotiated wouldn't be an adequate substitute for tough enforcement and fines imposed by the federal government.

"How much is the public ultimately going to get back in this case?" said Bill Singer, a private securities lawyer and former attorney for the National Association of Securities Dealers, which operates the Nasdaq market. "I don't understand why we got a plaster job where a wrecking ball was needed."

The possible $900 million settlement in a 1994 class-action lawsuit brought by investors against 37 brokerage firms -- including major companies such as Merrill Lynch & Co.; Goldman, Sachs & Co., and Smith Barney Inc. -- would be the largest ever for such a civil antitrust suit, according to legal experts.

The report of the settlement talks in Friday's Wall Street Journal was confirmed by a Wall Street source familiar with the matter, who spoke on condition of anonymity. The Journal also reported the possible action against traders by the SEC.

In a civil antitrust settlement with the Justice Department, 24 of the 37 brokerages agreed to improve their compliance procedures and tape-record some phone calls made and received by traders. The Wall Street firms, which neither admitted nor denied wrongdoing in the settlement, were not fined.

In its settlement with the SEC last year, the NASD similarly did not admit or deny wrongdoing. The SEC censured the dealers' group, saying it broke federal securities laws and its own rules in failing to enforce the rules on the Nasdaq, the nation's second-largest stock market. The NASD agreed to spend $100 million over five years to improve market surveillance.

In making its case, the market watchdog agency charged that major Nasdaq dealers harassed or refused to trade with others who tried to offer investors a better price for a stock. Other times, the powerful dealers colluded in what amounted to a form of price fixing.

Dealers delayed reporting major trades when it could hurt their stock holdings, the SEC said. Calling themselves "friendly competitors," dealers swapped trading plans or important company news before the public found out.


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