Stockbroker Fraud Headlines: Securities Claims Against Lehman Underwriters Are Dismissed, NYSE Euronext Works on Kill-Switches Plan, and SEC Calls for Structured Products Ratings Roundtable

Securities Claims Against Lehman Brothers Holdings Inc. Underwriters Are Dismissed
The U.S. District Court for the Southern District of New York has thrown out the California Corporations Code claims made against the underwriters of two offerings of Lehman Brothers Holdings Inc. debt securities per the precluding of the 1998 Securities Litigation Uniform Standards Act. This, despite the fact that the securities case was brought by one plaintiff and lacks class action allegations.

The SLUSA’s enactment had occurred to shut a 1995 Private Securities litigation Reform Act loophole that let plaintiffs filing lawsuits in state courts circumvent the Act’s tougher securities fraud pleading requirements. It generally allows for federal preemption of state law class actions contending misrepresentations related to the buying or selling of a covered security. However, the court granted the motion to dismiss noting that even though the securities case was brought only on the State Compensation Insurance Fund’s behalf, it is still a covered class action within the act’s meaning.

NYSE Euronext Working on Kill-Switches Plan
According to NYSE Euronext (NYX) EVP and US equities head Joseph Mecane, the group is making headway with coming up with a concrete plan to implement kill switches that would shut trading should a technological error happen. The desire for such a tool comes in the wake of recent prominent trading errors that have demonstrated the technology flaws in the US equity markets.

NYSE Euronext, other SROs, buy-side firms, and brokerage firms have even formed an industry working group to tackle this matter. Speaking at a Senate Banking subcommittee hearing on computerized trading, Mecane said that among the details still being worked out are whether the kill switch should be implemented at the SRO level or clearing level. Another issue under discussion is about which parts of the process should be optional and/or obligatory.

SEC Recommends Structured Products Ratings Roundtable
According to a Commission study, the SEC should call a roundtable to look at three possible ways of dealing with issues related to structured finance products’ credit ratings, such compensation models, conflicts of interest, and other matters. The study was mandated by Dodd-Frank Wall Street Reform and Consumer Protection Act,

One possible approach would involve setting up a board that would create an “assignment system” for nationally recognized statistical rating organizations to provide ratings for these products. This would take issuers out of the NRSRO choice process, which could allow raters to feel not as pressured to conform with client preferences. A second route involves enhancing the 1934 Securities Exchange Act’s Rule 17g-5, which mandates that arranger-hired NRSRO’s figure out initial ratings for structured finance products so that certain measures can taken to make sure that other NRSROs rate the products. The third option involves looking at different alternative compensation models for credit raters.

IIn re Lehman Brothers Securities and ERISA Litigation, S.D.N.Y., 09 MD 2017 (LAK) (PDF)

Industry Group Nearing Concrete Plan On Kill Switches to Halt Erroneous Trades, Bloomberg BNA, December 19, 2012

Industry Group Nearing Concrete Plan On Kill Switches to Halt Erroneous Trades, Bloomberg BNA, December 19, 2012

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