A complaint filed on Friday by the City of Providence accuses high frequency stock traders, stock exchanges and brokerage houses of rigging the stock market at the expense of ordinary investors. Coming in the wake of publicity from Michael Lewis’ new book, Flash Boys, the suit is brought on behalf of a massive putative class of all investors who bought or sold shares on public exchanges for the past five years. Among the named defendants are the NASDAQ and New York Stock Exchanges, Bank of America, E*Trade and other banks and brokers.
Citing directly to Lewis’ book, the complaint alleges:
Notwithstanding their legal obligations and duties to provide for orderly and honest trading and to match the bids and orders placed on behalf of investors at the best available price, the Exchange Defendants and those Defendants that controlled alternate trading venues demanded and received substantial kickback payments in exchange for providing the HFT [high frequency trading] Defendants access to material trading data via preferred access to exchange floors and/or through proprietary trading products. Likewise, in exchange for kickback payments, the Brokerage Firm Defendants provided access to their customers’ bids and offers, and directed their customers’ trades to stock exchanges and alternate trading venues that that the Brokerage Firm Defendants knew had been rigged and were subject to informational asymmetries as a result of Defendants’ scheme and wrongful course of business, all of which operated to the detriment of Plaintiff and the Class. Defendants’ predatory practices included the Brokerage Firm Defendants selling “special access” to material data, including orders made by Plaintiff and the Plaintiff Class so that the HFT Defendants could then trade against them using the informational asymmetries and other market manipulation detailed herein. Flash Boys at 168-72 and 242-43.
The complaint seeks unspecified compensatory damages, along with restitution and forfeiture of allegedly ill-gotten gains. The case is before Judge Wood. (H/t D&O Diary.)