Specialist Firms Told of Possible SEC Charges

The Securities and Exchange Commission is contemplating civil charges against at least five New York Stock Exchange specialist firms for violating securities laws and exchange rules against improper trading activities.

LaBranche & Co., Van Der Moolen Holdings and Fleet Specialist, a subsidiary of FleetBoston Financial Corp., confirmed they received “Wells notices” from the SEC. The commission sends such notices to warn companies that civil enforcement charges may be recommended against them.

Sources close to the investigation said two other firms received notices. They declined to name the firms.

All five firms have also received similar notices from the NYSE, which intends to bring a formal disciplinary proceeding against the firms for violating exchange rules.

An SEC spokesman said the commission does not comment on ongoing investigations. Separate statements from LaBranche, Van Der Moolen and Fleet Specialist said they would cooperate with the SEC and NYSE investigations. Spokesmen for each company declined to provide additional comment.

Specialist firms have been under fire recently for allegedly slanting customer trades to benefit their firms instead of customers. The NYSE and SEC have been investigating these practices for months.

In October, the NYSE said it would seek tens of millions of dollars in fines against five specialist firms -- Bear Wagner Specialists; Spear, Leeds & Kellogg Specialists; Fleet Specialist; LaBranche; and Van Der Moolen -- for improper trading.

An NYSE spokesman had no comment on the notices issued Friday, nor on the status of its own investigation.

Last month, the California Public Employees Retirement System announced a class-action lawsuit against the NYSE and seven specialist firms for bilking investors out of millions of dollars through fraudulent trading practices. Besides the five firms, the CalPERS suit also named Performance Specialist Group and Susquehanna Specialists Inc.

Spokesmen for Goldman Sachs, parent company of Spear, Leeds & Kellogg, and Performance Specialist Group would not comment on whether their firms also received Wells notices. A spokesman for Susquehanna said his company did not receive an SEC notice. Bear Wagner did not return calls seeking comment.