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The nation’s largest pension fund will rely on one of the country’s best-known class action litigators as it tries to prove the New York Stock Exchange and seven trading funds swindled millions from investors. William Lerach — the Milberg Weiss Bershad Hynes & Lerach partner famed for his suits on behalf of shareholders — is representing the California Public Employees’ Retirement System in a class action filed Tuesday in a New York federal court. CalPERS, which manages $154 billion in assets for 1.4 million members, wants to recover pension fund investment money it lost because of “illegal trading practices,” said CalPERS President Sean Harrigan. The case alleges the defendants took at least $150 million from investors, according to a press release from state Treasurer Phil Angelides, a CalPERS board member. Trading firms carried out a range of “manipulative self-dealing, and deceptive and misleading conduct by fraudulently stepping in the way” of trades between buyers and sellers, according to Angelides’ release. The NYSE was aware of the practices but did nothing to stop them, the suit alleges. “We’re convinced, and we will seek to prove in court, that the New York Stock Exchange not only knew of these rampant problems, and knew they existed, but also perpetuated them,” Harrigan said. It’s just the latest blow for the stock exchange, which has been the target of intense criticism from shareholder advocates — including Angelides — over the multimillion-dollar pay package approved for former NYSE chief Richard Grasso. Grasso resigned amid the furor, and the stock exchange board was revamped in the wake of the scandal. Lerach cites the compensation scandal in the suit, using it as an example of the exchange’s inability to effectively police its members. “Even though the NYSE is a nonprofit, quasi-regulatory agency with a public purpose, it has now been revealed that these executives have been receiving lavish — indeed obscene — compensation packages.” This isn’t the only case Milberg Weiss is handling for CalPERS. It also represents the pension fund in litigation against WorldCom filed after that company imploded. Lerach was not talking to the press Tuesday, said an assistant who answered the phone in his San Diego office. Members of California’s Democratic elite play a key role in managing CalPERS, and Lerach’s firm has been a top contributor to the party. In 2002 alone, the firm gave $250,000 to the state Democratic Party. Besides Angelides, CalPERS’ board includes San Francisco Mayor Willie Brown, state Controller Steve Westly and nine others. But Patricia Macht, a CalPERS spokeswoman, touted the firm’s role as a shareholder litigation powerhouse as the key reason for its role in the case. “[This] was a firm that seemed ideally suited for the kind of entrepreneurial case this is,” Macht said. No one has gone after the NYSE in this way before, she added. The trading firms named in the lawsuit include LaBranche and Co.; Bear Wagner Specialists; Spear, Leeds and Kellogg Specialists and the Goldman Sachs Group; Van Der Moolen Specialists USA; FleetBoston Financial Corp.; Performance Specialists Group; and Susquehanna International Group. At this point, Macht said no members of the NYSE board of directors have been named personally. However, “if evidence shows some personal wrongdoing, then [lawyers] could amend the complaint,” she said. NYSE spokesman Ray Pellecchia said the exchange doesn’t comment on pending litigation. To some lawyers, the suit is the equivalent of a securities sumo match, with heavyweight CalPERS lunging at the equally large NYSE. “This is one solid institutional investor taking on an icon of American business, so it’s always interesting when that happens,” said Shirli Fabbri Weiss, a Gray Cary Ware & Freidenrich partner who specializes in securities cases. “It shows how aggressive institutional funds have become in filing lawsuits.” Weiss predicted other pension funds may follow CalPERS’ lead if the California fund is successful. “These institutions to some extent rely on government regulators to enforce, or help enforce, the law,” Weiss said. “This fund decided to take matters into its own hands, which means it’s dissatisfied.” Senior Writer Renee Deger and the Associated Press contributed to this report.

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