Nasdaq Dealers Split on Issue of Settlement Talks : Securities: Action could end Justice Dept. price-fixing inquiry but might weaken firms’ position in cases brought by investors.

As the Justice Department’s antitrust division threatens to bring a price-fixing case against dealers in Nasdaq stocks, the dealers--many of them well-known Wall Street firms--are divided on whether to begin settlement talks, antitrust law experts said over the weekend.

A quick settlement would put an end to the department’s investigation, which several Nasdaq dealers believe has put a cloud over the nation’s fastest-growing stock market.

But the antitrust experts said a settlement with Justice could severely weaken the dealers’ hand in separate private class-action antitrust cases brought by investors. Under the treble damages allowed under the Sherman Antitrust Act, the private suits could conceivably cost the dealers hundreds of millions of dollars.

In addition, a separate Securities and Exchange Commission probe is still pending, and Nasdaq firms are unclear whether they could face SEC penalties as well.

The investigations center on allegations that Nasdaq dealers have cooperated to ensure themselves high profits by keeping spreads wide on Nasdaq-listed stocks. Spreads are the gap between the price at which dealers offer to buy a stock and the higher price at which they offer to sell. Dealers and Nasdaq have strongly denied any wrongdoing.

The Times reported Friday that the Justice Department, which has been investigating Nasdaq dealers since last year, recently told dealers that the government has enough evidence to bring a case and urged them to begin settlement talks.

Sources over the weekend confirmed that the department’s overtures to the dealers dealt with potential civil charges only. They said that Justice, in proposing the broad outlines of a settlement, suggested that they agree to an injunction--a court order requiring them to change the way they trade Nasdaq stocks. When Justice brings a civil antitrust case, an injunction is the only remedy it can seek. It cannot impose fines. And unlike private citizens who bring civil antitrust lawsuits, it cannot seek monetary damages.

But a decision to settle with the government could have costly consequences for the firms targeted in private suits, said Garret G. Rasmussen, an antitrust lawyer at Washington law firm Patton, Boggs & Blow. Although a settlement could not be used as evidence against the dealers, it could embolden plaintiffs and influence the judge in the private suits, convincing him that the allegations may have merit.

On the other hand, Rasmussen said, if the Nasdaq dealers fight the government in court and win, “that really undercuts the private actions.” However, the risk to fighting is that if the dealers lose in court, then the judgment against them is prima facie evidence of a violation that could doom them in the private suits.

Most of the private antitrust cases against Nasdaq dealers were consolidated and put before U.S. District Judge Robert W. Sweet in Manhattan. On Aug. 4, Sweet dismissed the consolidated suits against 33 of the biggest Nasdaq dealers on the ground that the initial combined complaint was not specific enough. But he gave permission for the case to be refiled, and both sides have said they expect a new complaint to come quickly.

Large amounts of money are at stake because the spreads on most Nasdaq stocks are at least 25 cents, contrasted with 12.5 cents on the New York Stock Exchange. When the alleged overcharging is multiplied by the billions of shares traded each year on Nasdaq, and damages tripled as antitrust law allows, the potential cost to dealer firms could be tremendous.

Dealers, also called market makers, are firms that stand ready to buy or sell Nasdaq stocks at publicly quoted prices. They include virtually all of the well-known Wall Street investment houses, such as Merrill Lynch and Morgan Stanley, as well as firms that do little besides make markets in Nasdaq stocks.

Several lawyers for Nasdaq dealers said that Justice’s threat to seek civil rather than criminal penalties may indicate that it has only a weak case.

On Sunday, Justice spokesman Gregory J. King declined to comment on the investigation.

Attorney Rasmussen said that a criminal case would require proof of a criminal conspiracy. But there are more than 500 Nasdaq dealers, and he said that Supreme Court decisions have made it difficult to prove conspiracies involving many alleged parties.

Philip L. Verveer, a longtime Washington antitrust lawyer, said the antitrust division has traditionally been reluctant to bring criminal antitrust cases against closely regulated industries.

Nasdaq dealers are subject to regulation by the SEC and by Nasdaq’s parent organization, the National Assn. of Securities Dealers, which under federal law is a self-regulatory organization empowered to enforce securities rules.