CalPERS Calls for Liability at NYSE

The New York Stock Exchange should be stripped of legal immunity typically granted to regulators because it colluded with market makers in a scheme that hurt investors, California’s giant public pension fund, CalPERS, said in court papers.

The California Public Employees’ Retirement System, which has more than $178 billion in assets, first sued the world’s largest stock market in December 2003, alleging its seven trading specialists used the system to profit at investors’ expense.

The lawsuit, which aims to recoup at least $150 million in trading losses and to push the NYSE toward more governance and regulatory changes, was later granted class-action status. CalPERS and Empire Programs Inc. are co-lead plaintiffs.

The brief filed last week in federal court in New York is in response to the NYSE’s bid to get the lawsuit dismissed.

In those court papers, CalPERS elaborates on the original allegations that the NYSE helped market makers trade ahead of customers and falsify records, and adds a claim that officials tipped off the firms to regulatory probes.

According to the brief, “top NYSE officials tipped off specialists to investigations by NYSE regulatory personnel before they took place, falsified trade data by approving trading records that it knew were false and worked with the specialists to alter the data to hide evidence of wrongdoing from the SEC.”

The NYSE argued in a brief in November that it deserved the same absolute immunity from class-action lawsuits granted to the Securities and Exchange Commission because it “stands in the shoes of the SEC” when acting as a specialist regulator.

The exchange said it must be free from “the expense, inconvenience and distraction” of lawsuits in order to carry out its job regulating the specialists.