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June 30, 1999

Dispute Pits SOES Bandit' Against Wholesaler: An ECN Fee Battle Threatens to Engulf Non-Combatant

By William Hoffman

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  • Dispute Pits SOES Bandit' Against Wholesaler: An ECN Fee Battle Threatens to Engulf Non-Combatant
  • Page 2

ATTAIN Direct, the online brokerage run by All-Tech Investment Group, has dozens of legal complaints it will file against Nasdaq market makers - unless its fee dispute with Knight Securities is satisfactorily resolved, according to an ATTAIN counsel.

But Knight Securities will be the test case, said Bill Singer, a partner at New York-based securities law firm Singer Frumento, and counsel to ATTAIN. If the firm is forced to take Knight Securities to federal court to recover its fees for securities trades executed since February 1998, ATTAIN may file similar "fill-in-the-blank" complaints against dozens of other market makers.

"This is a very, very critical case," said Singer, even as he acknowledged that the total fees in dispute with Knight Securities, are only about $100,000. Knight Securities is the Nasdaq market-making unit of Knight/Trimark Group.

"This is a very interesting case," agreed Anthony W. Djinis, partner at Pickard & Djinis in Washington, and outside counsel to Knight Securities. "It's very important for the [securities] industry."

Friends and Adversaries

Djinis and Singer - who described each other as long-time friends and adversaries - are now engaged in pre-hearing discovery and other discussions both say they hope will settle the matter between ATTAIN of Montvale, N.J., and Jersey City-based Knight Securities.

An initial mandatory arbitration hearing, under the auspices of the National Association of Securities Dealers, was postponed this spring and tentatively rescheduled for October. "We're attempting to work this out," Djinis said.

"If I were a betting man, I'd say that at this stage there's a 50-percent to 60-percent chance that it will settle before it goes to a hearing," Singer said.

But if it goes to a hearing before an NASD panel, Singer added, he expects ATTAIN to lose. Then, he will file complaints against Knight Securities and possibly other firms in federal court, potentially dragging dozens of market makers into the case.

At stake is about $100,000 in execution fees Knight Securities refused to ATTAIN, which runs an electronic communications network approved by the Securities and Exchange Commission.

"What we basically have here is Wall Street's equivalent version of jumping a turnstile," Singer said.

ATTAIN, which is headed by pugnacious SOES bandit' Harvey Houtkin, took its complaint to mandatory arbitration more than a year ago, and the lawyers have been talking ever since.

In an answer and counterclaim to ATTAIN's original claim filed by Pickard & Djinis last fall with the NASD, Knight Securities argued that ATTAIN rendered no service worth a transaction fee. ATTAIN's lawyers at Singer Frumento also stated that SEC and Nasdaq rules required market makers and ECNs to honor prices displayed on Nasdaq terminals.

Knight Securities' attorneys counterclaimed for at least $320,720, plus interest and damages, resulting from ATTAIN allegedly blocking Knight Securities' access to quotations it placed through the ECN on Nasdaq.

Yet it is the principles underlying the facts and charges, far more than the cash, that makes ATTAIN versus Knight Securities a case to watch, lawyers for both sides insisted. "It's a watershed case," Singer said.

"The principles are much more important than the actual dollars," Djinis agreed.

Playing Field