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wrongdoers and no one at the NASD or any market-making firm was ushered from the office in handcuffs or even immediately discharged. There was no cry of outrage after the consent agreement. |
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During the SEC investigation, a number of private cases were filed against the major market makers for civil damages. All the individual actions were certified as a class-action lawsuit and consolidated in the U.S. District Court for the Southern District of New York in New York City. U.S. District Court Judge Robert Sweet granted class-action status against 33 Nasdaq market makers for allegedly fixing stock prices. In a 94-page decision, Judge Sweet amalgamated all of the complaints into one megacase. |
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The class included investors who made trades through the major market makers from May 1, 1989, to May 24, 1994, and the class eventually could total about 6.3 million people and institutions. The 33 defendants, which included many of Wall Street's largest firms, like Goldman Sachs & Co.; Merrill Lynch & Co.; CS First Boston Corp.; and Donaldson, Lufkin & Jenrette Securities, Inc., had argued that the 33 cases should not be granted class-action status because the individual suits didn't address common questions. The class had invested in 1,659 Nasdaq securities with different brokerage firms at various times. |
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The suit accused the major market makers of conspiring to manipulate spreads between bid and ask prices on Nasdaq securities. Not surprisingly, the dealers were accused of rigging the prices in order to maximize their profits. |
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The class actions were based upon the existence of an unlawful conspiracy to eliminate odd-eighth quotations in order to increase price spreads in violation of the U.S. antitrust laws. The publication of econometric data indicating apparent market-maker price fixing was the catalyst for the class-action lawsuits. The lawsuits were driven by more than a million pages of documents in the Department of Justice probe and by very credible academic studies documenting the allegations by reputable professors at well-known universities. The NASD appeared to be shaken by the publicity surrounding |
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