Jan 9, 2009
In the 1990s, Bernard Madoff led a group of Nasdaq marketmakers who wanted a piece of the NYSE’s very profitable game. They argued they could give investors a better deal by bypassing the established exchanges and matching buyers and sellers more rapidly on their own computers. There was only one problem: The marketmakers were gaming the system, too. Marketmakers “had a cushy existence in the Nineties,” says WILLIAM CHRISTIE, a finance professor at Vanderbilt University who exposed the spread manipulation in an influential 1994 paper. That ended soon after Christie’s paper came out. Spreads collapsed literally overnight, and the Justice Department and class action lawyers extracted a consent decree and a $1 billion settlement a few years later.