Manipulation of call options on the Philadelphia exchange by market makers and brokers on dividend paying stocks and exchanged traded funds.

Lawrence Deutsch, Esq. of Berger & Montague, P.C., has been involved in numerous major shareholder class action cases. He recently served as lead counsel in the Delaware Chancery Court on behalf of Class A shareholders in a corporate governance litigation concerning the rights and valuation of their shareholdings. Defendants in the case were the Philadelphia Stock Exchange, the Exchange's Board of Trustees, and six major Wall Street investment firms. The case settled for $99 million and also included significant corporate governance provisions. 


Berger & Montague, P.C. has filed a class action in the U.S. District Court for the Eastern District of Pennsylvania on behalf of all persons who held short call option positions on “in the money” call options contracts on dividend paying stocks and exchange traded funds (“ETFs”) and who were adversely affected by Defendants’ manipulation of the options markets prior to the ex-dividend date on such securities from February 6, 2010 through the present (the “Class Period”).

The Complaint alleges that beginning in February 2010, Market Maker Defendants manipulated call options in advance of dividend payments on underlying securities to the detriment of all other holders of short call positions in those options contracts.  Specifically, the Market Maker Defendants, with the acquiescence of Defendants NASDAQ/PHLX and NASDAQ OMX, manipulated the options contracts by executing among themselves huge pre-arranged matched options trades on underlying securities immediately prior to the date for that security's dividend payment.

These market makers flooded the options market with additional option contracts one day before the ex-dividend date.  By greatly inflating the size of the open interest pool for the call options, the Market Maker Defendants, with the acquiescence of NASDAQ/PHLX and NASDQ OMX, increased their own chances of non-assignment of the options, thus increasing their chances to collect the dividend on those unassigned options.  Market Maker Defendants thereby improperly diverted the dividends that would have been paid to plaintiff and other members of the class, resulting in damages to the class.



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