A BILLION-DOLLAR NASDAQ SETTLEMENT, BUT WHAT WILL BE LEFT FOR THE LITTLE GUY? ADVISERS CAN HELP BY GATHERING RECORDS

A record $1 billion legal settlement in a Nasdaq price-fixing case could turn into a windfall for everyone but the individual investors – the number could be as high as one million – who believe they were victimized by 36 brokerages.

Mutual fund companies and other institutional plaintiffs, along with lawyers and claims compensation firms, are poised to reap the benefits.

Financial advisers are skeptical about what will be left for clients. “I don’t know if there really is a way they can equitably address what’s been going on,” says Anthony Orgorek, a financial adviser in Williamsville, N.Y.

The judge in the case, Robert W. Sweet of the U.S. District Court in Manhattan, hasn’t determined a formula for distributing rewards yet, and the process is sure to be laborious and complicated.

The companies involved have not admitted any wrongdoing, and San Francisco-based Robertson Stephens & Co. will continue to fight the charges.

One recent estimate said that the institutional investors stand to collect as much as $750 million. Mutual funds and pension plans clearly trade more often and in heavier volumes than individuals, so they will most likely demand more rewards.

It’s unclear so far what the mutual funds will do when they get their rewards. The likeliest scenario: They’ll reinvest the money in the funds – a kind of extra dividend – rather than calculate how much money is owed to each potentially eligible investor.

Of course, the lawyers involved must be paid, as must the firms hired to locate potential victims and process their claims.

One lawyer in New York who was not a part of the suit but plans to defend clients whose claims are rejected figures the percentage the lawyers and administrators get will be on the low side, given the settlement’s huge size.

Howard Sirota, a partner in New York securities firm Sirota & Sirota, estimated that between $50 million and $100 million would go to the lawyers. Claims administrators generally get $10 to $15 a claim, which could mean betwee
n $10 million and $15 million if one million claims are filed, leaving. between $885 million and $940 million to fight over.

Biggest of its kind

The suit, which resulted in the largest settlement ever in an anti-trust case, has transformed the Nasdaq exchange. Traders at 36 Wall Street firms were accused of colluding to set prices when they traded stock with each other between May 1989 and May 1996.

About 1,600 securities were involved. The result of the suit, which stems from a business school professor’s study of prices on Nasdaq, should produce trading that is based more on supply and demand.

Advisers could help clients by collecting appropriate records for investors who trade individual stocks on Nasdaq, suggests G. Peter Buchband, president of Garden City (N.Y.) Group Inc., a claims processing firm.

Mr. Buchband, whose firm is vying to become a claims processor in this case, says that in most class action suits investors learn how to file claims in broad-based print advertising campaigns. Also, the brokerages involved can check their data bases and contact clients who bought stocks through them.

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“Any financial planner who is not in orbit around Mars will find out about this through the print media,” Mr. Buchband says.

But planners ought to remain diligent about making sure their clients know what to do, says Brad Heffler, chief executive officer of Claims Compensation Bureau Inc. of West Conshohocken, Pa.

Many institutions that are plaintiffs in such cases, and some individuals, don’t file claims either because the form is complex or it’s too time consuming to dig up necessary paperwork. People often don’t believe the rewards are worth the effort, says Mr. Heffler, who works with Mr. Sirota to help claimants.

Mr. Heffler adds that even if an adviser’s client didn’t suffer an out-of-pocket loss, the client may still be eligible to reap rewards, which makes this case unique. Even if a client sold a stock at a gain, the price was not based on supply and demand but r
ather was set by traders. Therefore an investor could have received a higher price for his stock.

“Everybody will be entitled to money,” Mr. Heffler says.