The nation’s largest public pension fund said Tuesday it is suing the New York Stock Exchange and its seven specialist firms for collaborating to fleece investors over the last five years.

The California Public Employees Retirement System (CalPERS) alleges the exchange knowingly allowed specialists to manipulate the trading process to reap bigger profits for themselves and cheat investors out of the best stock prices. The lawsuit requests the district court consolidate other class action suits and designate CalPERS lead plaintiff on behalf of all harmed shareholders. A bulk of the companies in its $60 portfolio are traded on the NYSE by representatives from Goldman Sachs.

"Our lawsuit alleges that the NYSE not only knew these rampant problems existed, but it perpetuated them, profited from them and even hid the extent of the practices from investors," said Sean Harrigan, CalPERS president. "The specialist trading practices are the poster child for failed regulation."

The action comes on the heels of SEC allegations that the specialists engaged in front running and inter-positioning, two practices prohibited under by NYSE regulations. According to the complaint, traders would not fill outstanding buy and sell orders at the best prices, but rather stepped between trades when it met their own interests.

The specialist firms are accused of violating federal law by stepping into complete trades routinely, even when orders could have been executed without their intervention. The list of firms includes LaBranche & Co., Spear, Leeds, and Kellogg, Van der Moolen, Fleet, Bear Wagner, Performance Specialist Group and SIG.

CalPERS holds more than $157 billion in assets and provides retirement benefits to 1.4 million public employees and their families.

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