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Judge Broadens Investor Lawsuit Against Major Nasdaq Dealers

November 28, 1996

NEW YORK (AP) _ A lawsuit accusing 33 major brokerage firms of overcharging clients in Nasdaq Stock Market trades was widened Wednesday to cover millions of investors.

With class-action status, the lawsuit filed by about two dozen people now covers any investor who made Nasdaq trades through the firms between 1989 and 1994 _ potentially 6.3 million investors.

Plaintiffs’ attorneys said the class-action status was a significant victory, giving them much more muscle against some of the most prominent brokerage firms on Wall Street.

But lawyers for the firms downplayed it as an expected procedure and noted that U.S. District Judge Robert Sweet refused to allow institutional investors, such as pension fund managers, to join the lawsuit _ limiting the scope of the case.

The lawsuit was a companion to a Justice Department antitrust case that accused firms including Merrill Lynch & Co., Goldman Sachs & Co., and PaineWebber Inc. of fixing prices on the Nasdaq, the nation’s second-largest stock market.

The government’s case was settled in July, but didn’t involve criminal charges or fines, and the brokerage firms said they never conspired to manipulate prices or overcharge investors.

The lawsuit centers on many of the same allegations in the Justice Department’s case, alleging that Nasdaq dealers had a broad agreement to keep the gap between prices for buying and selling a stock artificially wide, which raised dealers’ profits but increased trading costs for investors.

Plaintiff attorney Arthur Kaplan said the ruling could mean that any damages ``can conceivably be as great as several billion dollars.″

But lawyers for the firms noted the judge had not ruled on the merits of the legal issues. And as for Kaplan’s estimates of damages, brokerage attorney Catherine Ludden said, ``The plaintiffs lawyers have visions of sugar plums dancing in their heads.″

She said the estimates may be about $50 to $125 for each plaintiff _ a number that would mean overall damages of no more than than $800 million if the plaintiffs’ lawyers’ estimates of the class-size are accurate.

Nasdaq declined comment.

The Justice Department’s settlement with the brokerage firms calls for new monitoring programs to ensure traders don’t deter competition. Kaplan said the investors’ lawsuit also seeks to widen those controls.

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