U.S. Presses Nasdaq Dealers to Talk Settlement : Securities: Justice Department tells big players it has enough evidence to bring price-fixing charges, lawyers confirm.
The Justice Department’s antitrust division has told big Nasdaq Stock Market dealers that its investigators believe they have enough evidence to bring price-fixing charges against them and has pressed them to begin talks about a joint settlement, several lawyers for dealers confirmed Thursday.
Both the Justice Department and the Securities and Exchange Commission since last year have been investigating allegations that Nasdaq dealers, also known as market makers, collaborated to keep the spreads wide on Nasdaq stocks. Spreads, essentially the dealers’ profit margin, are the gap between the price at which dealers offer to buy a stock and the higher price at which they offer to sell. Nasdaq and the dealers have strongly denied any wrongdoing.
The lawyers and others close to the investigation said in interviews Thursday that the Justice Department made the overtures in a series of telephone calls in recent weeks to law firms representing the Nasdaq dealers. They emphasized that Justice has made no formal decision yet whether to bring a case and has not stated specifically what charges are under consideration. They also said no settlement is currently on the table.
Nevertheless, after at least 10 months of intense investigation, the overtures are the first official signal that the Justice Department is moving toward filing a case. Gina Talamona, a spokeswoman for the antitrust division, declined to answer any questions Thursday except to confirm that the investigation is continuing.
Nasdaq spokesman James D. Spellman said he was unaware of the move by the Justice Department and referred questions to lawyers for the dealer firms. It was unclear whether the department may be contemplating criminal as well as civil charges, although to date all indications have been that only civil charges were under consideration.
The sources said a group of lawyers for more than 30 Nasdaq dealer firms met within the last week at the offices of New York law firm Shearman & Sterling and discussed the Justice Department’s suggestion of settlement negotiations. Two of the lawyers, who spoke on the condition that they not be named, said the group decided not to begin any settlement talks at least until the agency gives a clearer indication of what evidence it has and what charges are being contemplated.
One lawyer said the dealers were concerned that the Justice Department might be bluffing, attempting to lure them into a settlement even though it might not have enough evidence to win a case in court. “Presumably they think there’s something there, but they have not shared the evidence with us,” the lawyer said.
As previously reported, both the Justice Department and the SEC have obtained hundreds of hours of taped telephone conversations among Nasdaq dealers, which government sources characterized as containing numerous overt discussions about fixing spreads. However, Catherine A. Ludden, a lawyer whose firm represents Mayer & Schweitzer Inc., one of the largest Nasdaq dealers, has said she doubts the tapes contain any evidence of illegal activity.
The Times also reported last month that the SEC was moving toward filing an enforcement case against the National Assn. of Securities Dealers, Nasdaq’s parent organization, for failing to properly supervise the Nasdaq market. NASD officials have said they haven’t been notified of any possible charges by the SEC and strongly denied that their supervision has been lax.
On Aug. 4, a federal judge in New York dismissed a private class-action lawsuit filed by investors against 33 Nasdaq dealers, which alleged antitrust violations. The judge ruled that the lawsuit wasn’t specific enough, in part because it didn’t name the individual stocks in which the violations allegedly occurred.
However, the judge allowed lawyers for investors to refile the case with more specific allegations. Robert A. Skirnick, one of the lead lawyers for the investors, said he expects to file an amended lawsuit within a week.
