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SEC Fines 28 Brokerage Houses

January 11, 1999

WASHINGTON (AP) _ Federal regulators announced today they are fining 28 Wall Street firms a total of more than $26 million for alleged price-rigging on the Nasdaq Stock Market, in an industrywide settlement closing a five-year-old landmark case.

The Securities and Exchange Commission has been negotiating the settlement with the brokerage firms for months. The agreement involves many of Wall Street’s biggest names _ including PaineWebber Inc., which was fined $6.3 million; J.P. Morgan & Co., fined $1.27 million and ordered to repay $42,218 in allegedly illegal profits; Salomon Smith Barney Inc., fined $995,000 and ordered to repay $27,988; Morgan Stanley Dean Witter & Co., fined $350,000 and ordered to repay $4,170; Lehman Brothers Inc., fined $212,500; and Merrill Lynch & Co., fined $472,500.

The case goes back to 1994, when the SEC and the Justice Department alleged that major dealers on the electronic Nasdaq market conspired in a form of price-fixing that cost ordinary investors billions of dollars on their stock trades.

Under the settlement, the SEC also brought civil charges against 51 individual traders for the brokerage firms, temporarily suspending them from the securities business. The brokerage firms and the traders, who agreed to the sanctions, neither admitted nor denied wrongdoing.

The brokerage firms with the most alleged violations agreed to pay higher fines. In addition to $26.3 million in civil fines, the firms also agreed to pay back alleged illegal profits totaling $791,525.

The settlement also requires the firms to improve their trading policies and procedures, SEC officials said.

``Thanks to effective leadership, today Nasdaq is stronger and better,″ SEC Chairman Arthur Levitt said in a statement. ``The sound reforms implemented over the past several years, and the commitment to strong oversight, greatly enhance investor protections and reaffirm confidence in the Nasdaq market.″

A year ago, investors who sued the Wall Street giants in a 1994 class action won $910 million from 30 firms in a settlement _ the largest ever for such a civil antitrust suit.

In making its original case, the SEC 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 allegedly colluded in 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.

In a 1996 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, were not fined.

In its own settlement with the SEC in 1996, the National Association of Securities Dealers, the self-policing body that operates the Nasdaq market, 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.

The brokerage firms involved in the new settlement also include Bear Stearns & Co. Inc.; Cantor Fitzgerald & Co.; S.G. Cowen Securities Corp.; CS First Boston Corp.; Donaldson, Lufkin & Jenrette Securities Corp.; Gruntal & Co.; Hambrecht & Quist; Herzog, Heine, Geduld Inc.; Jefferies & Co. Inc.; Legg Mason Wood Walker Inc.; Mayer & Schweitzer Inc.; Olde Discount Corp.; CIBC Oppenheimer Corp.; Piper Jaffray Inc.; Prudential Securities Inc.; Raymond James & Associates Inc.; Robinson-Humphrey Co.; Sherwood Securities Corp.; Spear, Leeds & Kellogg; Tucker Anthony Inc. and Warburg Dillon Read.

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