FORM 8-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report: July 12, 1994
THE CHARLES SCHWAB CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 1-9700 94-3025021
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification Number)
101 Montgomery Street
San Francisco, California 94104
(Address of principal executive offices)
(415) 627-7000
(Registrant's telephone number,
including area code)
Item 5. Other Events. Mayer & Schweitzer, Inc.
("M&S"), a subsidiary of the Registrant, has been named
individually and, in four of the cases, as one of several
named representatives of an alleged defendant class
consisting of all market makers for all Nasdaq-listed stocks
in five class actions filed in federal district court between
May 27, 1994 and June 28, 1994. Each class action purports
to be brought on behalf of purchasers and sellers of
Nasdaq-listed securities between June 1990 (June 1991 for the
claims brought under securities laws) and the date of the complaints. As
described in a wire service story dated June 7, 1994, a
copy of which is included herein as Exhibit 99.1, the
complaints allege an illegal combination and conspiracy among
the defendant market makers to fix and maintain the spreads
between the bid and asked prices of Nasdaq-listed securities
at a minimum of $.25 and to avoid posting bids at "odd
eighths." Kaye v. Herzog, Heine, et. al. No. 94-4010, Robinson v. Herzog,
et. al. No. 94-3996, and Dampf v. Herzog, Heine, et. al. No. 94-
4151, are brought in the U.S. District Court for the Southern
District of New York. Kaye alleges violations of the Sherman
Act and related federal antitrust laws, as well as violations
of the Securities Exchange Act of 1934 and related federal
securities laws. Robinson alleges violations of the federal
antitrust laws. Dampf alleges both federal antitrust and
securities laws violations. Dolinar v. Sherwood Securities
et. al. No. 94-3578, is brought in the U.S. District Court
for the Northern District of Illinois and alleges both
federal antitrust and securities violations, and violation of
the federal Racketeer Influenced and Corrupt Organizations
Act ("RICO"). Perlman v. Herzog, Heine et. al., No. 94-992E,
is brought in the U.S. District Court for the Southern
District of California and alleges both federal antitrust and
securities laws violations.
In addition, M&S and Charles Schwab & Co., Inc.
("Schwab"), another subsidiary of the Registrant, have been
named as defendants in Abel v. Merrill Lynch et al., a class
action brought on behalf of California residents who
purchased and sold securities listed on Nasdaq during the
four years preceding the filing of the complaint. Abel is
brought in the Superior Court, State of California, County of
San Diego, No. 677313, and alleges violations of California's
Cartwright Act, Business and Professions Code Sections 16720
et. seq., and California's Unfair Competition Act, Business
and Professions Code, Sections 17203 and 17204. Although the
suit does not allege a defendant class, 11 alleged market
makers in Nasdaq-listed securities are named in addition to
M&S and Schwab. The conduct alleged is the same as in the
other cases.
The Registrant is informed that similar actions may
be brought in other federal or state courts.
None of the complaints sets forth any specific
conduct by Schwab or M&S and none requests any specific
amount of damages, although all request that the actual
damages be trebled where permitted by statute.
M&S and Schwab have been advised by certain of the
plaintiffs' counsel that such plaintiffs intend to amend
their complaints substantially and that certain of the
actions may be consolidated. M&S and Schwab are reviewing
the complaints in their current form. Neither M&S nor Schwab
has filed a substantive response to any of the complaints.
Item 7(c). Exhibits
99.1 Copy of wire service story dated June 7, 1994.
SIGNATURES
Pursuant to the requirements of the Securities
Exchange Act of 1934, the Registrant has duly caused this
report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Dated: July 12, 1994 THE CHARLES SCHWAB CORPORATION
By: _____________________________
A. JOHN GAMBS
Executive Vice President-Finance
and Chief Financial Officer
Exhibit Index
Number Description
99.1 Copy of wire service story dated June 7, 1994.
EXHIBIT 99.1
BBN 6/07 Nasdaq Market Makers Fixed Price Spreads, Lawsuit Claims
New York, June 7 (Bloomberg) -- At least four
market makers conspired to fix price spreads on Nasdaq
securities including Apple Computer Inc., Lotus Development
Corp. and Intel Corp., a lawsuit filed in federal court in
New York alleges.
Herzog Heine Geduld, Sherwood Securities Corp.,
Troster Singer Corp., and Mayer & Schweitzer Inc., a unit of
Charles Schwab Corp., were named as defendants. The
companies are market makers in Nasdaq securities.
Maxine Dampf, a Scarsdale, N.Y., woman who bought
and sold Apple and other Nasdaq stocks, is the plaintiff in
the suit, which is seeking class-action status.
The suit seeks unspecified damages, but asks that
any damages be tripled because it charges the market makers
with antitrust violations under the Sherman Antitrust Act.
The four firms fixed posted spreads in the prices
of securities and forced other market makers to do the same,
the suit alleges. Further, the defendants "refrained from
competing among themselves . . . in order to maintain such
posted spreads at artificially wide levels," the suit says.
The posted spread is the difference between the
price at which a company is willing to buy a security and the
price at which they are willing to sell it.
The lawsuit cites a study to be published in the
Journal of Finance. The study, by William Christie, a
professor at the Own Graduate School of Management at
Vanderbilt University, and Paul H. Schultz of Ohio State
University, found that spreads of 1/8 are "virtually non-
existent" in the sample of Nasdaq bid and ask quotes used in
the study.
The study found that prices in the sample were
rarely quoted in odd-eighth units (such as 1/8, 3/8, or 5/8).
Because prices were usually quoted in quarters, the minimum
spread between the bid and the asked price was usually 1/4,
the study said. If prices had been quoted in eighths, the
minimum possible spread would have been 1/8.
"We believe that this surprising result reflects an
implicit agreement among market makers," according to a
passage from the study which appears in the lawsuit. "A
large number of market makers per stock is not necessarily
synonymous with competition."
Many Nasdaq stocks have three or more market makers.
Plaintiff Dampf was not immediately available for
comment. Her lawyer, Jerald M. Stein, said he would not
comment on the suit. Each of the defendants declined to
comment on the lawsuit.
Princeton Newsroom (609) 279-4000./hm
