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February 1, 2001

Investors Receive Reparations From Nasdaq Scandal

By William Hoffman

The final chapter of the Nasdaq Stock Market price-fixing scandal started just in time to add a little cheer to investors' 2000 holiday season.

"Some of my friends got their checks in the mail right in time for Christmas," said Jim Angel, a professor of finance at Georgetown University in Washington, D.C.

Approximately 1,250,000 claimants are splitting about $1 billion credited as of July 1999 to the "Nasdaq Market-Makers Antitrust Litigation Settlement Fund." Lawyers' fees and expenses will reduce that sum by an undetermined amount. Representatives of the Securities and Exchange Commission and the National Association of Securities Dealers could not be reached for comment.

A spokesperson for the North American Securities Administrators Association declined comment.

Disbursement of the checks, which started on Dec. 23, 2000, ends a decade-long saga that shook Nasdaq to its roots.

University Study

A university study released in 1994 brought to a head long-standing charges that Nasdaq dealers conspired to boost their profits and spreads on the sale of popular stocks. After an 18-month investigation, the SEC censured the NASD for price-fixing. The NASD in turn promised $100 million for additional enforcement activities. Subsequent litigation yielded a 1998 court settlement covering investors who traded any of 1,659 Nasdaq stocks during certain time periods between May 1, 1989 and July 17, 1996.

Angel said the Nasdaq price-fixing debacle had some positive outcomes, beyond restitution for the investors.

"A lot of long-needed reforms have been instituted," including the order handling rules, he said. "So I think the market is a better place as a result."

But the settlement may also have unintentionally encouraged a more aggressive plaintiff's bar to seek mayhem in the securities markets, he warned. "To turn every negative outcome into a class action lawsuit to me is just a miscarriage of justice," Angel said. Regulators and markets remain too often unprepared to reliably distinguish between fraud and misfortune, he said. (see special feature, p 25.)