Manhattan federal Judge Robert Sweet approved the massive anti-trust settlement - the largest in U.S. history - closing a lawsuit that charged 37 Nasdaqmembers with fixing stock prices to maximize their profits at the expense of investors.

The firms - which are supposed to be competing for business - had secretly conspired to widen the difference between the price they paid for stocks and the price they sold them for between May 1989 and May 1994, the lawsuit charged.

The suit alleged Nasdaq dealers quoted stocks for customers to the nearest quarter of a dollar rather than the nearest eighth, which resulted in higher profits for the brokers.

The process by which the parties reached the proposed settlements was arms-length and hard-fought by skilled advocates and negotiators, Sweet wrote in a 66-page opinion approving the settlement. It was exemplary, fair and honest.

Evidence in the case included 3 million documents, 10,000 hours of tapes and more than 200 depositions. A trial could have consumed an entire year.

Sweet noted that even if a jury found Nasdaq liable, it might be persuaded to limit damages after a battle of the experts in which both sides would argue over whether the difference between Nasdaq's prices and those on the stock exchange could be caused by other factors.

Plaintiffs note that there is substantial risk that a jury might accept one or more of the defendants' damage arguments and award far less than the $1.027 billion settlement amount - or nothing at all, the judge noted.

Under the settlement, member firms of the National Association of Securities Dealers Automated Quotation system agreed to pay whopping sums to settle the case but denied any wrongdoing.

For example, Kidder, Peabody will fork over $14 million; Herzog, Heine, Geduld will pay more than $30 million; Montgomery Securities $20 million.

Thirty other firms, including Bear Stearns, Salomon Brothers, J.P. Morgan, Prudential, Merrill Lynch and PaineWebber, agreed last December to pay more than $909 million.

As part of a separate civil anti-trust settlement with the Justice Department, 24 of the firms agreed to record phone calls involving traders and to improve their compliance programs.

Lawyers for the investors believed the amount Nasdaqfirms reaped through collusion was closer to $3 billion.

The settlement was 130 times larger than the average antitrust case recovery between 1991 and 1994 and the lawsuit reduced the spread in stock pricing by 41 percent, the judge noted.

Law firms representing investors had sought $179 million in legal fees, but Sweet reduced the amount to more than $143 million plus another $4 million in expenses.

-- Al Guart - 11/10/98