case 1:04-cv-09526-lls document 1 filed 12/03/04...

j 142 APPEAL 25 USC 155

1423 WITHDRAWAL 28 USC 157

PROPERTY RIGHTS

[[820 COPYRIGHTS

1 1830 PATENT 11 840 TRADEMARK

SOCIAL SECURITY

Case 1:04-cv-09526-LLS Document 1 Filed 12/03/04 Page 1 of 55

O s1.M CIVIL C0VER4 ' 9526 JS 440/SONY The 25-44 civil cover sheet and The l 0ormation corrtsinsd herein neither replace nor supplement the filing and service of REV, 1/97 pesrtins or other papers as required bylaw, except asprovided by local rules of court. Thisfornr, approved byttie Judicial WEB 12/02 Conference of the United Slates in September 1974,5 required foruse of the Clerk ofCourlfor he purpose of initiating

the civil docket sheet.

PLAINTIFFS DEFENDANTS HADASSAH GURFEIN, individually and on behalf of all AMERITRADE, INC., AMERICAN STOCK EXCHANGE,

others similarly situated LLC, KNIGHT TRADING GROUP, INC. SPEAR, LEEDS (SEE ATTACHED RIDER FOR CONTINUATION)

ATTORNEYS FIRM NAME, ADDRESS, AND TELEPHONE NUMBER ATTORNEYS (IF KNOWN)

LOVELL STEWART HALEBIAN LLP, 500 Fifth Avenue, SQUITIERI & FEARON, LLP, 32 East 57th Street, 12th

58th Floor, New York, New York 10110 (212) 608-1900 Floor, New York, New York 10022, (212) 421-6492

CAUSE OF ACTION [CITE THE U5 CIVIL STATUTE UNDER WHICH YOU ARE PILING AND WRITE A 6RIEF STATEMENT OF CAUSE)

The claims alleged arise under Section 10(b) and 20(a) of the Securities Exchange Act of 1934, 15 U.S.C. Sections 78j(b) and 78t(a), and Rule 10-5, 17 C.F.R. Section 240.10b-5 promulgated thereunder.

Has this or a similar case been previously filed in SONY at any time? NoEs Yes? E Judg

If yes, was this case VolE lnvol, E Dismissed. No LIII Yes E If yes, give date ______ aseNo. TT T

(PLACE AN [x] IN ONE BOX ONL

NATURE OF SUIT

TORTS FORFEITURE/PENALTY 6ANKREJI1C3 - OTHER

CONTRACT

[1 110 INSURANCE 1120 MARINE

[ ]130 MILLER ACT 1140 NEGOTIABLE

INSTRUMENT 150 RECOVERY OF

OVERPAYMENT & ENFORCEMENT OF JUDGMENT

[151 MEDICARE ACT 152 RECOVERY OF

DEFAULTED STUDENT LOANS (EXCL VETERANS)

I 153 RE COVERY OF OVERPAYMENT OF VETERANS BENEFITS

I 180 STOCKHOLDERS SUITS

1150 OTHER CONTRACT 1195 CONTRACT PRODUCT

LIABILITY

ACTIONS UNDER STATUTES

REAL PROPERTY

CIVIL RIGHTS

PRISONER PETITIONS

[[210 LAND CONDEMNATION [[441 VOTING 1 1510 MO7IONSTO [] 220 FORECLOSURE [1442 EMPLOYMENT VACATE SENTENCE

[1230 RENT LEASES [[443 HOUSING 213 USG 2255

EJECTMENT ACCOMMODATIONS 1530 HABEAS CORPUS

[1240 TORTS TO LAND [[444 WELFARE [j535 DEATH PENALTY

[[248 TORT PRODUCT [1440 OTHER CML RIGHTS [1540 MANDAMUS & OTHER LIAEiLITY 1 ] 550 CIVIL RIGHTS

11290 ALL OTHER [JEtS PRISON CONDITION

REAL PROPERTY

PERSONAL INJURY

1 1310 AIRPLANE f)315 AIRPLANE PRODUCT

LIABILITY 11 320 ASSAULT. LIBEL &

SLANDER

(1 330 FEDERAL EMPLOYERS' LIABILITY

340 MARINE 11345 MARINE PRODUCT

LIABILITY [[350 MOTOR VEHICLE [[355 MOTOR VEHICLE

PRODUCT LIABILITY [1360 OTHER PERSONAL

INJURY

(1 370 OTHER FRAUD E 137 TRUTH IN LENDING

1380 OTHER PERSONAL PROPERTY DAMAGE

[[385 PROPERTY DAMAGE PRODUCT LIABILITY

LABOR [[861 MIA [1395FF[

117W FAIR LABOR [1562 BLACK LONG {923)

STANDARDS ACT (l63 DIWC [405[g))

1720 L.AEOWMGMT 11 863 DIWW (405(9))

RELATIONS t 186 SSID TITLE XVI

1)730 LABORJMOMT (Jthh RSI (405([) REPORTING & DISCLOSURE ACT

[[740 RAILWAY LABOR ACT FEDERAL TAX SUffS [[790 OTHER LABOR

LITIGATION [[870 TAXES [[751 EMPL RET INC 1 [871 IRS-THIRD PARTY

SECURITY ACT 20 USC 7609

1 400 STATE REAPPORTIONMENT

[[410 ANTITRUST [[420 BANKS & BANKING [[450 COMMERCE/ICC

RATES/ETC [[450 DEPORTATION [[470 RACKETEER INFLU-

ENCED & CORRUPT ORGANIZATION ACT (RICO)

[1 810 SELECTIVE SERVICE IN 950 SECURITIESI

COMMODITIES! EXCHANGE

[[575 CUSTOMER CHALLENGE 12 USC 3410

[[851 AGRICULTURE ACTS [[892 ECONOMIC

STA6ILIZAT1ON ACT [[892 ENVIRONMENTAL

MATTERS [1884 ENERGY

ALLOCATION ACT [1 895 FREEDOM OF

INFORMATION ACT [3900 APPEAL OF FEE

DETERMINATION UNDER EQUAL ACCESS TO JUSTICE

[1950 CONSTITUTIONALITY OP STATE STATUTES

[1890 OTHER STATUTORY ACTIONS

PERSONAL INJURY I 151 AGRICULTURE

11 620 FOOD & DRUG

362 PERSONAL INJURY- [ 3625 DRUG RELATED MED MALPRACTICE SEIZURE OF

[[395 PERSONAL INJURY PROPERTY PRODUCT LIABILITY 21 USC 881

[1398 ASBESTOS PERSONAL ( I E30 LIQUOR LAWS INJURY PRODUCT E 164 I1R&TRUCK LIABILITY [[50 AIRLINE BEGS

[1660 OCCUPATIONAL PERSONAL PROPERTY SAFETY/HEALTH

1 1 690 OTHER

Check ic demanded in comp/amt:

CHECK IF THIS IS A CLASS ACTION UNDER F.R.CP. 23

DEMAND $_________ OTHER----

Check YES only if demanded In complaint JURY DEMAND: X YES [II] NO

DO YOU CLAIM THIS CASE IS RELATED TO A CIVIL CASE NOW PENDING IN SDNY? IF SO, STATE:

JUDGE

DOCKET NUMBER

NOTE: Please submit at the time of filing an explanation of why cases are deemed related.

(SEE REVERSE)


RIDER TO CIVIL COVER SHEET

AND KELLOG, INTERACTIVE BROKERS and PREFERRED CAPITAL MARKETS

AMERICAN STOCK EXCHANGE, LLC 86 Trinity Place New York, New York 10006

New York County

KNIGHT TRADING GROUP, INC. 525 Washington Boulevard Jersey City, New Jersey 07310

Hudson County

SPEAR, LEEDS and KELLOG 120 Broadway, 21st Floor New York, New York 10271

New York County

INTERACTIVE BROKERS 2 Pickwick Plaza Greenwich, Connecticut 06830

Fairfield County

PREFERRED CAPITAL MARKETS dib/a Preferred Trade Inc. 667 Mission Street

th 4 Floor San Francisco, California 94105

San Francisco County


A0 440 (Rev. 10193) Summons ins Civil Action - SONY WEB 4199

ant"trb *tatr f5trirt Lourt SOUTHERN DISTRICT OF TEW'IORK

HADASSAH GURFEIN, individually and on behalf of all others similarly situated,

Plaintiff, SUMMONS IN AJ4CASE

V. (AQ MI IRAQIt

AMERITRADE, INC., AMERCIAN STOCK EXCHANGE, LLC, KNIGHT TRADING GROUP, INC., SPEAR, LEEDS AND KELLOG, INTERACTIVE BROKERS and PREFERRED CAFTIAL MARKETS, Defendants.

TO: (Name and address of defendant)

Ct, :

AMERITRADE, INC. 4211 South 102nd Street Omaha, Nebraska 68127 (SEE ATTACHED RIDER TO SUMMONS FOR CONTINUATION)

YOU ARE HEREBY SUMMONED and required to serve upon PLAINTIFF'S ATTORNEY (name and address)

LOVELL STEWART HALEBIAN LLP

SQUJTIERI & FEARON, LLP 500 Fifth Avenue

32 East 57th Street 58th Floor

12th Floor New York, New York 10110

New York, New York 10022

an answer to the complaint which is herewith served upon you, within -20 days after service of this summons upon you, exclusive of the day of service. If you fail to do so, judgment by default will be taken against you for the relief demanded in the complaint. You must also file your answer with the Clerk of this Court within a reasonable period of time after service.

OEO 03 Z004

CLERK

DATE

(BY) DEPUTY CLERK


RIDER TO SUMMONS

AMERICAN STOCK. EXCHANGE, LLC 86 Trinity Place New York, New York 10006

KNIGHT TRADING GROUP, INC. 525 Washington Boulevard Jersey City, New Jersey 07310

SPEAR, LEEDS and KELLOG 120 Broadway, 21st Floor New York, New York 10271

INTERACTIVE BROKERS 2 Pickwick Plaza Greenwich, Connecticut 06830

PREFERRED CAPITAL MARKETS d!b/a Preferred Trade Inc. 667 Mission Street 41h Floor San Francisco, California 94105


LOVELL STEWART HALEB IAN LLP John H.alebian (JH-8005) Frederick W. Gerkens, Ill (FWG-7595) 500 Fifth Avenue, 58th Floor New York, New York 10110 Tel: (212) 608-1900

SQUIT1ERJ & FEARON, LLP Olimpio Lee Squitieri (OLS- 1684) Daniel R. Lapinski (DRL-7447) 32 East 57th Street, 12 "' Floor New York, New York 10022 Tel: (212) 421-6492

Attorneys for Plaintiff

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK

[U Lj 1L3 -

---------------------x

HADASSAH GURFEIN, individually and on behalf of all others similarly situated,

Plaintiff,

V.

AMERITRADE, INC., KNIGHT TRADING, GROUP, INC., SPEAR, LEEDS AND KELLOG; INTERACTIVE BROKERS, PREFERRED CAPITAL MARKETS and AMERICAN STOCK EXCHANGE, LLC

Defendants

Civil Action No.

CLASS ACTION COMPLAINT

JURY TRIAL DEMANDED

---------------------x

NATURE OF THE ACTION

Plaintiff, Hadassah Gurfein ('Plaintiff'), by and through her attorneys, for her complaint

against defendants- alleges upon knowledge as to herself and her own circumstances, and upon


information and belief, based on the investigation of her counsel, as to all other matters and

states as follows:

Plaintiff, a retail customer of defendant Ameritrade, Inc. ("Ameritrade") brings

this class action on behalf of herself, and members of a class (the "Class"), against Ameritrade,

the defendant American Stock Exchange (the "AMEX") and certain of the AMEX's agents

and/or members, i.e. defendant options specialists, who together conspired with the AMEX to

materially misrepresent both (I) real time electronically displayed "bid" and "ask" quotes on

listed equity options and (ii) that customer orders would he executed instantaneously when

plaintiff (and other "Direct Access" customers) accepted the bid or offer that was electronically

displayed by the particular options specialist. Instead, defendants knowingly and intentionally,

systematically refused to execute stock option transactions when Plaintiff, and others, submitted

a limit order that specifically accepted the displayed quote or was specifically within the

electronically displayed bid and ask-- which should have been executed instantaneously.

Starting in late 1999, broker-dealers developed and implemented systems designed to provide

their public customers with "Direct Access" to the options exchanges, including the options

exchanges automatic execution systems. Accordingly, customers of Direct Access firms

expected to receive fast, and preferably automatic executions of their orders.

2. However, contrary to the fast and automatic executions expected by public

customers like Plaintiff, defendants knowingly falsely and misleadingly represented

electronically displayed real time bid and ask quotes that, at the time that such quotes were

electronically displayed, defendants knew and intended that such quotes would not be honored

with respect to a large segment of the investing public, such as retail customers like Plaintiff. in

addition, to the extent that defendants honored such quotes with respect to larger more favored

7


customers, defendants discriminated against Plaintiff and members of the Class, defendants

engaged in anti-competitive conduct and otherwise breached obligations of good faith and fair

dealing. The wrongdoing committed by defendants constitutes violations of the anti-fraud

provisions of the federal securities laws and gives rise to state law claims such as breach of

contract.

3. Defendants' wrongful conduct has been so systematic and so egregious that both

the United States Justice Department (the "Justice Department") and the United States Securities

and Exchange Commission (the "SEC") have brought and settled charges against the AMEX

multiple times, the SEC issued a blistering report regarding the AMEX's misconduct in June

2003, and as recently, as November 12, 2004, it was reported that the SEC was threatening the

top three executives of the AMEX for still failing to enforce the very same AMEX rules whose

wholesale violations caused substantial monetary damage to plaintiff and members of the Class.

4. Specifically, from in or about April 2001 through the date of this complaint (the

"Class Period"), Plaintiff, and members of the Class, regularly placed orders to purchase and/or

sell equity options on the AMEX within the real time quoted bid and ask, directly or indirectly

through the AMEX's agents and/or members, i.e. options specialists (the "Options Specialist

Defendants"). The Options Specialist Defendants either refused to execute the limit orders

placed at the displayed quote, or, in the case of market orders, were executed at a price less

favorable than the displayed quote, in direct violation of the Firm Quote Rule, the antifraud

provisions of the federal securities laws, and state law. In addition, Plaintiff seeks to represent a

subclass of similarly situated persons, consisting of customers who placed purchase or sale

orders for equity options through A.rneritrade which were not executed by the Options Specialist


Defendants at the displayed quotation, thus violating the Firm Quote Rule, or in the case of

market orders, were executed at a price less favorable than the displayed quote.

In or about September 2000, both the United States Securities and Exchange

Commission (the "SEC") and the United States Department of Justice (the "Justice Department")

investigated and commenced proceedings against the AMEX and others for violations of certain

securities and antitrust statutes and regulations for anticompetitive behavior concerning, inter

preferential treatment of larger customers trading in exchange traded options and

agreements reached in restraint of trade amongst certain exchanges to allocate amongst

themselves, the options to be listed on each exchange.

6. Shortly thereafter, on November 20, 2000, the SEC adopted amendments to

Exchange Act Rule 11 AC- 1, The Quote Rule, (or "Firm Quote" Rule) to extend that Rule to the

options markets. The AMEX followed with the adoption of its own version of the Firm Quote

Rule, AMEX Rule 958A, "Application of the Firm Quote Rule," which requires each option

specialist to execute any customer order in an amount up to its published size and any broker-

dealer order in an amount up to the size established and periodically published by the Exchange

7. As a result of these investigations and proceedings, the defendants in the

government instituted proceedings, including the AMEX, entered into consent orders and the

SEC promulgated regulations that prohibited options exchanges and their members, including the

AMEX. and the Option Specialist Defendants from discriniinating in priority and\or price when

executing options orders on behalf of customers either directly or through their brokers, such as

defendant Ameritrade.

4


Notwithstanding these sanctions and additional rules, the SEC began receiving

complaints from customers and\or their brokers in or about 2001 that the AMEX and its

specialist members frequently violated the Firm Quote Rule.

9. On June 13, 2003, after an investigation of the foregoing complaints, the SEC

issued a lengthy report finding that (1) the AMEX and its specialist members were executing

preferred customer option orders before executing orders from customers like Plaintiff and

members of the Class, and (2) were intentionally failing to fill limit orders at the displayed quote,

to the financial detriment of customers, like Plaintiff. The SEC Report confirmed the

widespread nature of the violations of the Firm Quote Rule. The findings of the SEC

investigation revealed that from approximately 89.9% of Direct Access limit orders went unfilled

at certain times whereas only 12.4% of non-direct access orders went unfilled under similar

circumstances.

10. More specifically, the SEC's Jane, 2003 Report, found with respect to the facts

underlying Plaintiffs claims here, in pertinent part:

(a) That the AMEX Board of Governors has failed to adequately ensure that

the Amex is complying with the undertakings in the September 2000

Order;

(b) That the Exchange's regulatory program to detect and discipline violations

of the Firm Quote Rule was deficient to the extent that the Exchange has

not meaningfully enforced the Firm Quote Rule since it became effective

in April 2001;


(c) That the SEC staff conducted an independent analysis of audit trail data

and found that Amex specialists routinely violated the Firm Quote Rule;

and

(d) That the SEC Staff found serious deficiencies in the Amex's regulatory

programs related to trade reporting, trading ahead, limit order display, best

execution, and anti-competitive conduct.

Ii. Arneritrade, as many on-line brokers, provided to their retail customers like

Plaintiff, real time quotations of options' bid and ask prices on the Internet or through other on-

line facilities, i.e. Direct Access. However, Ameritrade refused to execute Plaintiffs options

orders at the real time quoted prices, and in a conspiracy with Knight Trading, one of the Option

Specialist Defendants, Knight refused to honor the Firm Quote Rule or executed Plaintiffs

orders behind those orders of its preferred customers. The AMEX conspired with Ameritrade

and the Options Specialist Defendants and engaged in concerted activity to conceal such

violations and to manipulate government regulatory investigations and hearings to allow the

Options Specialist Defendants to avoid preventative action by government regulators. Thus,

Plaintiff and members of the Class suffered damages because purchase and sell orders placed by

Plaintiff and members of the Class that were placed within the real time displayed quotes, were

either not executed at all or were executed at less favorable prices than larger favored customers.

JURISDICTION AND VENUE

12. The claims alleged herein arise under Sections 10(b) and 20(a) of the Securities

Exchange Act of 1934 (the Exchange Act"), 15 U.S.C. 78j(b) and 78t(a), and Rule l0b-5, 17

C.F.R. 240.loh-5 promulgated thereunder. This Court also has supplemental jurisdiction over

6


asserted state law claims pursuant to 28 U.S.C. 1367(a) because the state law claims are so

related to Plaintiff's federal claims that they form a part of the same case or controversy between

the parties under Article Ill of the United States Constitution.

13. The jurisdiction of the Court is based on Section 27 of the Exchange Act, 15

U.S.C. 78aa. and 28 U.S.C. 1331. in connection with the acts, transactions, and conduct

alleged herein, defendants used the means and instrumentalities of interstate commerce,

including interstate telephone communications, and the facilities of interstate national securities

exchanges and markets.

14. Venue is proper in this District pursuant to Section 27 of the Exchange Act and

28 U.S.C. 1391(b). Many of the acts alleged herein, including the dissemination to the

investing public of the materially false and misleading electronically displayed quotes on listed

options, originated from or were disseminated from this District.

THE PARTIES

15. Plaintiff Hadassah Gurfein ("Gurfein") is a citizen of the State of New Jersey.

During the Class Period she maintained a brokerage account with defendant Ameritrade through

which she and/or her authorized representative ("Plaintiff') was provided with direct electronic

access to AMEX options specialists for the transactions of her options purchase and sell orders.

Plaintiffs account at Ameritrade allowed her to transmit her equity options orders directly to the

AMEX trading floor ("Direct Access"). As set forth in greater detail below, in connection with

option limit sell orders for equity options on Forest Laboratories, Inc. (Forest Labs"), certain

defendants, in effect, refused to honor specific quotes that were electronically displayed by those

defendants and accepted and contracted to by Plaintiff, and consequently, Plaintiff suffered

7


approximately $50,000 of damages, comprising both lost profits that would have been realized

but for defendants' wrongful conduct, and out-of-pocket losses that were sustained when

defendants refused to execute Plaintiffs limit orders that accepted a bid displayed by the

defendant options specialist.

46. During the Class Period, defendant American Stock Exchange, LLC, was a

national securities exchange registered with the SEC pursuant to Section 6 of the Securities

Exchange Act of 1934 (the "1934 Act") located in New York, New York, The Amex maintains

a market to purchase and sell stocks, bonds and equity options, including the equity options for

Forest Labs. The AMEX is a self-regulatory organization, also called an SRO. As such, it is

responsible for and obligated to manage and supervise the conduct of its members and related or

associated persons in the manner in which such persons conduct business under the auspices of

the AMEX. In this connection, the AMEX is required to maintain various regulatory programs

such as surveillance, investigative and disciplinary programs related to options order handling

that are supposed to be designed to enforce compliance not only with the AMEX's owns rules

and regulations but also with the federal securities laws and regulations. As previously alleged

above, and as alleged below in greater detail, the AMEX has so egregiously failed in its

regulatory mission to police and enforce options order handling as to become an active and

willing participant in the actual commission of the wrongdoing alleged herein.

17. During the Class Period, defendant Knight Trading Group, LLC ("Knight") was a

broker-dealer that, through its wholly-owned subsidiary, Knight Financial Products, LI...C,

operated as the assigned options specialist at the AMEX for the purchase and sale of put and call

options for Forest Labs and other stocks. According to its own promotional materials, Knight is

the second largest provider of options execution by volume and is the named specialist in


approximately 468 options which covers more than two-thirds of all equity option order flow on

all five United States options exchanges.

18, During the Class Period, defendant Spear, Leeds & Kellog ("Spear Leeds") was a

broker dealer that was an assigned options specialist at the AMEX for the trading of equity

options.

19. During the Class Period, defendant Interactive Brokers ("Interactive") was a

broker dealer that was an assigned options specialist at the AMEX for the trading of equity

options.

20. During the Class Period, defendant Preferred Capital Markets ("Preferred

Capital") was a broker dealer that was an assigned options specialist at the AMEX for the trading

of equity options.

21. During the Class Period, defendant Ameritrade, Inc. ("Ameritrade"), a Delaware

corporation, was headquartered in Omaha, Nebraska, and was in the business of providing self-

directed investors gateways to trading securities through the electronic medium, online access

from it's customers home personal computers ("PCs") to the rest of the financial markets.

22. Defendants listed in paragraphs 17 through 20 above are collectively referred to

herein as the "Options Specialist Defendants."

CLASS ACTION ALLEGATIONS

23. Plaintiff brings this action as a class action pursuant to Rules 23(a) and (b)(3) of

the Federal Rules of Civil Procedure, on behalf of herself and all others similarly situated who

placed direct access orders to open and/or close put or call equity options positions with respect

to all equity options on stocks transacted on the AMEX, including, but not limited to, the stocks

9


of Forest Laboratories, Inc.; Qlogic; Verisign; Juniper Networks; Dupont; Merrill Lynch QQQ;

Affymetrix; Broadeom; Lehman Brothers, Inc.; and Exxon Mobil from April 2, 2001 to the date

of this Complaint (the "Class Period") which were not executed at the displayed quotation price

(the "Firm Quote Class") and on behalf of a subclass of Ameritrade customers who placed orders

to open and/or close put or call equity option positions from April 2, 2001 to the date of this

Complaint that were not executed at the displayed quotation price (the "Ameritrade

Suhclass")(Both the Firm Quote Class and the Ameritrade Subclass are hereinafter collectively

referred to as the "Class")

24. Excluded from the Class are the defendants, each of their subsidiaries and

affiliates, entities in which each of the defendants have a controlling interest, and the successors,

affiliates or assigns of any of the foregoing excluded persons and entities.

25. The persons in the Class are so numerous that joinder of all members is

impracticable. During the Class Period, the AMEX received over 2000 equity option orders by

direct access per week.

26. Plaintiffs claims are typical of the claims of other members of the Class, as:

(a) Plaintiff and the members of the Firm Quote Class were Direct Access

customers, whose orders to buy or sell option contracts were not executed at the electronically

displayed quotation by defendants and thus sustained damages, as a result of defendants'

wrongful conduct complained of herein; and

(b) Plaintiffs claims are typical of the claims of members of the Ameritrade

Subclass, whose orders to buy or sell option contracts were not executed at the electronically

displayed quotation by Anieritrade and thus sustained damages, as a result of defendants'

wrongful conduct complained of herein.

10


27. Plaintiff is a representative party who will fairly and adequately protect the

interests of the other members of the Class and has retained counsel competent and experienced

in class action securities litigation. Plaintiff has no interests which are antagonistic to, or in

conflict with the Firm Quote Class or Ameritrade Subclass that she seeks to represent.

28. A class action is superior to other available methods for the fair and efficient

adjudication of the claims asserted herein. As the damages suffered by the individual class

members may be relatively small, the expense and burden of individual litigation make it

virtually impossible for class members individually to redress the wrongs done to them. The

likelihood of individual class members prosecuting separate claims is remote. Plaintiff

anticipates no unusual difficulties in the management of the action as a class action.

29. There are questions of law and fact common to the Firm Quote Violation Class

which predominate over any questions solely affecting individual members of the Class,

md tiding:

(a) whether the defendants entered into the contracts when they displayed bid

and ask prices that were accepted by Plaintiff and members of the Class;

(b) whether the Firm Quote Rule violations described herein constitute a

breach of contract and violations of section 10(h) of the Securities Exchange Act;

(c) whether Plaintiff and the Class are third-party beneficiaries to the

contracts between the Options Specialist Defendants and introducing brokers such as

Ameritrade;

(d) the appropriate measure of damages.

ii


30. There are questions of law and fact common to the Ameritrade Subclass which

predominate over any questions of law and fact solely affecting individual members of the

Arneritrade Subclass, including:

(a) whether Ameritrade is liable for committing the wrongful acts alleged

herein by not filling option purchase or sale limit orders at the electronically displayed quotes;

(b) whether the members of the Ameritrade Subclass have sustained

significant financial damages and, if so, what is the proper measure thereof;

(c) whether Ameritrade's conduct constitutes violations of Section 10(b) of

the Securities Exchange Act;

(d) whether Ameritrade breached the parties' applicable agreements with

respect to the execution of options trades of Plaintiff and other members of the Ameritrade

Subclass, and the covenants of good faith and fair dealing implied therein, breached the fiduciary

duties owed to Plaintiff and other members of the Ameritrade Subclass in connection with the

execution of options trades and\or has been unjustly enriched;

(e) whether Ameritrade should provide an accounting of all commissions and

other compensation of any kind that it directly or indirectly received in connection with the

execution of options trades by Ameritrade on behalf of Plaintiff and the Anieritrade Subclass and

(f) whether Plaintiff and the Ameritrade Subclass members are entitled to

equitable relief, restitution and damages.

12


SUBSTANTIVE ALLEGATIONS

The AMEX and Execution of Option Orders

31. Defendant AMEX through its members or their agents, the Option Specialist

Defendants, among other things, provides a market place for the buying and selling of stock

options.

32. The Options Specialist Defendants are members of the AMEX. They are charged

with maintaining a fair and orderly market in one or more securities. The Option Specialist

Defendants execute orders, including limit orders, on behalf of other AMEX members, such as

defendant Arneritrade, a registered stockbroker, for a portion of the broker's commission.

33. Defendants guarantee performance of the counter-parties to the transactions that

take place on the AMEX. One of the services defendants provide for their customers and\or

counterparlies is the real time quotation of stock option prices, including bid and ask quotes, at

which public customers, such as Plaintiff and the Class, can buy and sell options contracts

34. One of the ways the defendants provide these price quotations is through their

various electronic transfer or display systems.

35. Once the real time price is displayed on the computer screens, the public

customer, directly or indirectly through his broker, may buy or sell the option by clicking on the

price shown on the screen.

13


36. Defendants, either directly or indirectly, affirmatively represented to the public

customer, that when the customer "clicks" on the represented price (either to buy or sell) that the

transaction is executed instantly.

37. After this instantaneous stock option transaction is completed, defendants send an

instantaneous confirmation notice that appears on the public customer's (or his broker's)

computer screen.

38. The Options Specialist Defendants all maintain systems to allow equity options

investors such as Plaintiff and members of the Class to have direct access to the AMEX options

specialists.

N. During the Class Period, Plaintiff received the AMEX's options price quotations

on her computer screen through Ameritrade's facilities for providing Plaintiff with Direct

Access.

40. Defendants through conduct and practices described above and below, repeatedly

failed to execute options trades at the displayed or represented price.

The 2000 SEC and Justice Department Actions Against the AMEX

The Year 2000 SEC Proceedings

41. On September II, 2000, the SEC issued an Order that required the AMEX to:

promptly enhance and improve its surveillance, investigative and enforcement processes and activities with respect to options order handling rules, including, the duty of best execution with respect to the handling of orders after the broker-dealer routes the order to such respondent exchange, compliance with limit order display rules, priority rules, trade reporting and firm quote rules.

The Order also required the AMEX to:

promptly enhance and improve its surveillance, investigative and enforcement processes and activities with a view to preventing and eliminating ... harassment, intimidation, refusals to deal and

14


retaliation against market participants for acting competitively, or seeking to act competitively, and ... other anticompetitive conduct.

In The Matter of Certain Activities of Options Exchanges, Order Instituting Public

Athninistrative Proceedings Pursuant to Section 19(b) (1) of the Securities Exchange Act of 1934,

Making Findings and Imposing Remedial Sanctions, Securities Exchange Act Release No. 43268

(Sept. ii, 2000).

42. On November 20, 2000, the SEC adopted amendments to Exchange Act Rule 11

Ad-I, the Quote Rule (Or "Firm Quote Rule"), extending its application to the options markets.

As amended, Rule 11 Ac I - I required responsible brokers or dealers (including the Options

Specialist Defendants) to execute options transactions with customers at prices at least as

favorable as their published bids or offers at the time the orders are presented and in any amounts

of contracts up to their published sizes. An options specialist is excused from the firm quote

obligation only under very specific limited conditions not applicable here.

43. The AMEX adopted its own version of the "Firm Quote Rule." As amended,

AMEX Rule 958A, "Application of the Firm Quote Rule," obligates each specialist to execute

any customer order in an option series in an amount up to its published quotation size and any

broker dealer order in an amount up to the size established and periodically published by the

Exchange. The AMEX is responsible for ensuring that specialists such as the Options Specialist

Defendants adhere to rules and regulations including the Firm Quote Rule described above.

The Year 2000 Department of Justice Proceedings

44. The AMEX is no stranger to anticompetitive behavior. On September 11, 2000,

the Antitrust Division of the Justice Department filed a complaint against the AMEX and other

exchanges for violations of Section 1 of the Sherman Act. 15 U.S.C. 1.

15


45. On September 26. 2000, the defendants entered into a "Proposed Order,

Stipulation and Competitive Impact Statement" with the United States.

46. The complaint and proposed order alleged that the "defendant exchanges reached

an [illicit] understanding between and among one another to refrain from listing equity option

classes that were already listed on another exchange."

47. The complaint also alleged "that the exchanges enforced the agreement in various

ways, including threatening and harassing exchanges and market makers that desired to multi-list

option classes . .

The 2003 SEC Follow-Up Investigation & Findings

48. According to a June 16, 2003 report by the SEC, it began receiving complaints in

early 2001 from customers that AMEX specialists were frequently violating "firm quote"

requirements with respect to options orders by, among other things, backing away from their

electronically displayed quotations in response to limit orders and, in the case of market orders,

executing their orders at prices inferior to their displayed prices. The SEC commenced an

investigation of the AMEX thereafter.

49. As part of the aforementioned investigation, the SEC conducted an analysis of

audit trail data from the week of October 22, 2001 to evaluate order handling by AMEX options

specialists including the Options Specialist Defendants, The SEC analyzed both market orders

and marketable limit orders that did not receive an automatic execution through the AMEX's

Auto-Ex system. Marketable limit orders are buy (sell) orders for which the limit price is greater

(less) than or equal to the prevailing ask (bid) when the order is received by the specialist- These

orders should have been executed at the prevailing quotes when the orders were received, unless

an exception to the Firm Quote Rule was applicable.

16


50. The SEC's investigation into the AMEX and the Options Specialist Defendants'

compliance with the Firm Quote Rule revealed significant disparities in the way options

specialists handled Direct Access orders versus orders received from firms not offering Direct

Access to its customers. According to the SEC Report, the disparity in the way specialists,

including the Options Specialist Defendants, handled orders indicated that specialists routinely

discriminated against orders from Direct Access customers by failing to execute their marketable

orders, in likely violation of the "firm quote," "due diligence" and "priority" niles.

51. The ability of the Options Specialist Defendants to identify the order routing firm

such as Ameritrade, allowed specialists to discriminate against particular customers' orders. The

SEC also found that the AMEX failed to adequately detect, investigate and discipline this

conduct.

52. According to the SEC Report (when the specialists were not busy with any other

orders), 37.6% of marketable limit orders from Direct Access customers went unfilled while only

5.2% of orders from all other customers went unfilled in likely violation of the firm quote, due

diligence and priority rules. The SEC also found that, as options specialist post activity

increased, the chance of receiving an execution decreased at a higher rate for direct access

customers versus other customers. When the Amex specialists were busy (for purposes of the

SEC's analysis, when the specialists had received ten or more orders in the previous 30 seconds).

the direct access customers had only an 11.2% chance of receiving an execution, while all other

customers had an 87.6% chance of receiving an execution.

53. In response to these findings, the SEC recommended:

[T]he AMEX immediately remove the firm-identifying information from incoming electronic, orders to limit the specialist's ability to discriminate when handling customer orders. The Staff does not believe this information is necessary for a

17


specialist to fulfill its obligations, and its removal should limit the specialist's ability to discriminate when handling customer orders.

54. It is the responsibility of the AMEX to monitor its member's compliance with all

applicable rules including the AMEX Firm Quote Rule. The SEC found serious deficiencies in

the Amex's regulatory program for detecting, investigating, and disciplining firm quote

violations that resulted in the Amex's failure to effectively enforce the Firm Quote Rule.

55. According to the SEC Report, even a cursory review of one of the AMEX's firm

quote exception reports revealed that Amex specialists appeared to fail to honor their

disseminated quotes at high rates in response to orders from public customers, and at even higher

rates in response to orders from Direct Access firms. According to the SEC Report, the AMEX

knew, or should have known, from the high volume of complaints it received, that its options

specialists were engaging in improper conduct.

56. The SEC found that the AMEX failed to enforce the Firm Quote Rule and

employed incorrect or inadequate review procedures in its analysis and investigation of potential

firm quote violations that caused it to improperly conclude that firm quote violations had not

occurred. Moreover, when the AMEX did conclude that a firm quote violation had occurred, it

failed to discipline its member(s) in any meaningful way. The SEC found, through interviews of

several members of the Floor Violation Disciplinary Committee, that the committee could not

clearly articulate the requirements of the Firm Quote Rule and often failed to issue fines for Firm

Quote Rule violations when such fines were warranted.

57. The SEC found that the AMEX failed to file the annual progress reports required

by the September 2000 Order in a timely fashion. The SEC found that the AMEX's regulatory

program to detect and discipline violations of the Firm Quote Rule was deficient to the extent

18


that the AMEX failed to meaningfully enforce the Firm Quote Rule since it became effective in

April 2001.

Ameritrade and Knight

58. Ameritrade promoted, as an advantage to Plaintiff and other similarly situated

customers, its ability to provide them Direct Access to options exchanges including the AMEX

and the AMEX's automatic option execution systems, known as "Auto-Ex."

59. Ameritrade utilizes electronic systems which display real time prices of the

various stock options on the computer screens of public customers, such as Plaintiff, and allow

the customer to have "Direct Access" to the trading floor of the AMEX through Auto-Ex and

other means. Once the price is displayed on the computer screen, the public customer may buy

or sell the option by "clicking" on the price shown on the screen.

60. Arneritrade has a financial interest in Knight Trading through its approximate 6%

ownership interest in Knight Trading. This financial interest gives Ameritrade a financial

incentive to route as many orders as possible through Knight even if such routing is to the

financial detriment of its own customers.

61. Ameritrade routed Plaintiff's limit orders to Knight, the AMEX options specialist

for Forest Labs equity options, to the exclusion of other exchanges trading Forest Labs equity

options and refused to reroute such orders when Knight failed, several times, to execute the limit

order at the purported firm quote.

62. There is an "order flow" agreement between Ameritrade and Knight pursuant to

which 75% of all orders placed by Ameritrade customers are routed through Knight Trading.

63. Defendant Knight, at various times throughout the Class Period, while acting as

a member of an exchange that is registered by that exchange as a specialist, or is authorized by

19


that exchange to perfom functions substantially similar to that of a specialist, failed to

immediately publish bids or offers that reflected (i) the price and the full size of each customer

limit order held by the specialist that is at a price that would improve the bid or offer of such

specialist in such security and failed to publish (ii) the full size of each customer limit order held

by the specialist that; (A) is priced equal to the bid or offer of such specialist for such security;

(B) is priced equal to the national best bid or offer; and (C) represents more than a dc ininimis

change in relation to the size associated with the specialist's bid or offer. Defendant Knight also

failed to execute transactions at the electronically displayed quotes in violation of the Firni Quote

Rule.

64. On January 7, 2002, the NASD announced that Knight had been censured and

fined $700,000 in sanctions for wide-ranging market making and trading violations, including

failure to honor posted quotes and to accurately report trades to the NASD. NASD Regulation

found that Knight committed numerous violations of federal securities laws and NASD Rules

spanning the 4-year period from July 1997 to May 2001. Knight violated the locked and crossed

markets rule, and found that Knight failed to honor posted quotes, promptly display limit orders

and report trades timely and accurately to the NASD.

65. SEC Administrative Proceeding File No, 3-10839 also states that Knight was

censured and fined for violations of the Limit Order Display Rule between October 1997 and

August 1999.

Defendants Wrongfully Failed to Execute Plaintiff's Limit Orders that Accepted the Bids that were Electronically Displayed by Defendants

66. In or about December 2002, Plaintiff attempted to purchase and then sell, equity

options on Forest Labs through transmission of limit orders via online transmission from her

home computer, through the facilities of Ameritrade, to the AMEX trading floor.

20


The Forest Labs December 100 Puts

67. On or about December 4, 2002, Plaintiff bought 50 Forest Labs December 100

put contracts (FXAXT) at a price of $0.90 per contract for a total price of $4,500.00 (exclusive

of commissions), Two days later, on December 6, 2002, the value of the FXAXT contracts had

increased significantly from $0.90 per contract to almost $8.00 per contract. Accordingly, on

December 6, 2002, at 8:52:54 AM (CST), the electronically displayed "bid" on FXAXT was

$7.70 (the price that a buyer was willing to pay for the put) and the "ask" (i.e. the price that a

seller was willing to sell a put) was $8.00. Thus, if a seller placed an order or otherwise accepted

the "bid" at $7.70 (or less), that transaction should have been executed instantaneously. These

bid and ask prices were electronically displayed on Plaintiff's computer through Ameritrade's

facilities. At 8:53:34 (CST) Plaintiff placed a limit order via the Internet, to sell 50 FXAXT

contracts at $7.70.

68. Ameritrade purportedly, immediately routed Plaintiffs order to the market. In

fact, at the same moment that Plaintiff placed her order, the displayed bid actually increased to

$7.80, so that Plaintiff was actually willing to sell the contracts for a lower price than was being

bid. But in almost three minutes that transpired, what is considered an eternity in placing orders

and executing transactions in the securities markets, that order was not instantaneously executed

as it should have been and was required to be. So at 8:56:21 AM (CST) Plaintiff cancelled that

order and replaced it with another order that was at or below the electronically displayed bid,

which similarly should have been instantaneously executed. However, similarly, it was not.

This scenario was repeated several times, and each time that the order should have been

instantaneously executed, it was not.

21


69. Because of the materially false and misleading real time quotes displayed by

Arneritrade and the defendant options specialist, under the auspices of the AMEX and with its

knowledge, and the failure and refusal of both Anieritrade and the defendant options specialist to

execute the transaction, as they were required to do, Plaintiff was compelled to use an alternate

means to salvage a rapidly decreasing unrealized gain. Plaintiff ultimately exercised the 50

FHAXT contracts by purchasing 5000 common shares of Forest Labs (F.RX), the underlying

instrument. She purchased 100 shares at 894.90 and 4900 shares at 94,97. She then immediately

sold the 5,000 shares for $100 per share for a profit of $24,157, less the cost of the options which

would make the profit approximately $20,500. Had the initial options sell order been executed

timely, the gross proceeds would have been $34,000, i.e., $7.70- $0.90 - $6.80 x 5,000= 834,000.

Thus, Plaintiff was deprived of approximately $13,500 of profits by defendants' wrongdoing.

The Forest Labs February 85 Puts

70. Between October II, 2002 and November 19, 2002 Plaintiff purchased and

accumulated 100 Forest Labs February 85 Puts (FHANQ). These pats were purchased at prices

ranging from $200 per contract to $6.00 per contract for a total purchase price of $39,850

(exclusive of commissions). On December 6, 2002, the same day that Plaintiff attempted to sell

the Forest Labs December 100 puts, Plaintiff submitted orders to sell 100 contracts of FHANQ at

$4.50 which price was also below the bid, displayed and represented by Ameritrade on Plaintiffs

computer at that time. That order should have been immediately executed. Instead, of these

100 contracts, only 25 contracts were sold and at a significantly lower price of $3.00 for a loss of

81750. i.e.. $4.50- 8100= $1.50 x 2500= 83,750. Subsequently, as a result of 2-for-I split, the

remaining 75 contracts were converted to 150 FHANV, which were sold on January 21, 2003 at

$0.20 equivalent to 83,000. This, when compared to 75 contracts at $4.50 (or 833,750), resulted


in a negative differential of S' )0,750, The total negative impact of the FHANQ matter equals

534,500.

71. Plaintiff's limit orders were eligible for the "automatic execution" by the Forest

Labs options specialist at the AMEX, namely Knight. In effect, Knight's display of bid or ask

prices constituted offers to contract for the purchase or sale of those options and Plaintiffs'

transmission of sell orders constituted an acceptance which required .Ameritrade and Knight to

accept the contract and execute the agreed upon transaction.

72. The Defendants failed to allow Plaintiff and other members of the Class to

properly use their respective electronic trading systems and realize investment gains by:

(a) Failing to execute option transactions when Plaintiff and others similarly

situated submitted orders which agreed to the displayed bid or ask price or

otherwise "clicked" on prices transmitted through their respective

electronic transfer systems; or

(h) Changing or "fading" the option price quoted through their respective

electronic trading systems when "clicked" on by Plaintiff and others

similarly situated.

Other Wrongful Conduct Committed By Defendants

73. The Options Specialist Defendants, the AMEX and A.meritrade conspired by

concerted action based on shared information which allowed the co-conspirators to identify

direct access orders from four letter acronyms included by the AMEX on the incoming electronic

order and refuse to execute same at the electronically displayed quote.

74. The co-conspirators acted in concert in the investigation and reporting of Firm

Quote Rule violations by refusing to enforce the Firm Quote Rule and improperly manipulating

23


the work of the "Minor Floor Violation Disciplinary Committee" to which all except one of the

Firm Quote Rule Violations was referred by the AMEX. Up until June, 2003, the ten person

committee consisted entirely of floor members including persons affiliated with the defendants

named herein.

75. The Defendants also engaged in anti-competitive conduct to the detriment of

Plaintiff and the Class, by refusing to execute trades with Plaintiff and the Class.

FIRST CLAIM FOR RELIEF (Against All Defendants for Violation of Section 10(b)

of the Exchange Act and Rule ltJb-S)

76. Plaintiff repeats and realieges each and every allegation contained in all of the

foregoing paragraphs as if fully set forth herein.

77. During the Class Period, defendants, singly and in concert, directly and indirectly,

engaged in a common plan, scheme, and unlawful course of conduct, pursuant to which they

intentionally, knowingly or recklessly, engaged in acts, transactions, practices and courses of

business which operated as a fraud and deceit upon Plaintiff and other members of the Class, and

made various deceptive and untrue statements of material facts and omitted to state material

facts, in order to make the statements made, in light of the circumstances under which they were

made, not misleading to Plaintiff and members of the Class.

78. During the Class Period, the Options Specialist Defendants knowingly,

intentionally, regularly and systematically displayed, by electronic means, materially false and

misleading real time bid and ask prices on options listed at the defendant AMEX in that the

Options Specialist Defendants knew that, although required to, they would refuse to execute

transactions on behalf of a large segment of the investing public like Plaintiff and members of

the Class to the financial detriment of Plaintiff and members of the Class. Plaintiff and members

24


of the Class did not know that in many cases they had little if any chance of executing a

transaction on an AMEX listed option simply by electronically accepting a displayed bid or ask

quote.

79. As a result of the Options Specialist Defendants' electronic display of materially

false and misleading real time bid and ask quotes, Plaintiff and members of the Class were

materially denied the represented benefits of "Direct Access" trading and were denied larger

profits or subjected to larger losses because their limit orders would not be executed by the

Options Specialist Defendants. Plaintiff and members of the Class, by reason of defendants'

display of quotes that they knew were false and misleading with respect to a large segment of the

investing public and which they had no intention of honoring, suffered damages in an amount to

be proven at trial.

SECOND CLAIM FOR RELIEF (Against Defendant AMEX for Violation of

Section 20(a) of the Exchange Act)

80. Plaintiff repeats and realleges each and every allegation contained in all of the


81. Defendant AMEX by virtue of its authority as a self-regulatory organization and

by virtue of its obligation to maintain various regulatory programs such as surveillance,

investigative and disciplinary programs related to options order handling that are supposed to be

designed to enforce compliance not only with the AMEX's owns rules and regulations but also

with the federal securities laws and regulations, is a controlling person of the Options Specialist

Defendants with respect to their compliance with the rules and regulations of the AMEX and the

anti-fraud provisions of the federal securities laws. As documented by the June 2003 SEC

Report related to the AMEX's handling of compliance and enforcement of the options handling

25


responsibilities of the Options Specialist Defendants, the AMEX's purported regulatory

personnel, knowingly, intentionally, and purposefully turned a blind eye to gross violations of

the Firm Quote Rule with respect to the knowing display of materially false and misleading bid

and ask quotes and the systematic failure and refusal of the Options Specialist Defendants to

properly execute transactions. The regular and systematic gross violations of SEC and AMEX

rules and regulations and the federal securities laws by the Options Specialist Defendants could

not have occurred but for the complicit but affirmative acquiescence of defendant AMEX.

82, The AMEX had the power and influence and exercised the same to cause the

Options Specialist Defendants to engage in and/or affirmatively permit the illegal conduct and

practices complained of herein.

83. By reason of the conduct alleged above, defendant AMEX is liable for the

aforesaid wrongful conduct, and is liable to Plaintiff and the Class for damages which they

suffered in connection with the refusal of the Options Specialist Defendants to properly execute

their limit orders, in an amount to be proven at trial.

THIRD CLAIM FOR RELIEF (Against Defendant Ameritrade for Breach of Contract)



85. During the Class Period, Ameritrade made representations concerning

Anieritrade's practices, procedures and capabilities for execution of orders. Ameritrade's

marketing materials stated as follows:

How Does Ameritrade route orders differently than other brokers? Our sophisticated order routing technology allows us to dynamically distribute orders to multiple market centers in an effort to obtain best execution. In addition, we continually and

26


routinely monitor our execution quality to make improvements that will benefit our clients. We employ over 100 metrics including price, speed, liquidity and opportunities for price improvement, to assure that order flow is directed to markets that provide best execution for our clients.

What is auto-execution? Auto-execution is a threshold established by a liquidity provider (market maker) that allows for the automated execution of orders regardless of the actual displayed size on the National Best Bid and Offer (NBBO). In an attempt to increase the likelihood that your order is executed in its entirety, Ameritrade routes orders to numerous liquidity providers that offer auto-execution. Auto- execution, however, is never guaranteed. It can be decreased or discontinued at will by the liquidity provider.

86. In addition, in materials provided to Plaintiff and the Ameritrade Subclass,

Ameritrade represented:

How Your Account Is Managed?

28. All transactions under this Agreement are made subject to the constitution, rules, regulations, customs and usage of the exchange or market and its clearinghouse, if any, where Advanced or its assigns execute the transactions.

29. Stock orders are routed via an electronic matrix to a listed, NASDAQ, or over-the-counter agent, depending upon the security being ordered. Ameritrade and Advanced cannot accept requests to route orders to a specific exchange for execution. Arneritrade or Advanced receives cash payments for routing any stock orders for execution to certain agents on specific listed, NASDAQ, and over-the-counter securities. These agents are market makers and they carry inventory in their specific securities, which allows for price improvement to the retail customer for securities ordered through their inventory. Accordingly, any order is always executed at the "best bid," "best offer," or at price superior to the other one by virtue of the market maker's inventory positioning capability.

87. Defendant Ameritrade, through the conduct and practices described above,

intentionally failed to execute orders submitted by Plaintiff and the Ameritrade Subclass' at the

27


"best bid," "best offer," or "at a price superior to other ones," and, accordingly, breached its

contract with Plaintiff and the Arneritrade Subclass to obtain the best execution.

88. As alleged above, defendant Ameritrade also failed to execute orders of Plaintiff

and the Ameritrade Subclass "instantaneously" through automatic executions, and, accordingly,

breached its contract with Plaintiff and the Ameritrade Subclass to obtain the best execution.

89. As a direct result of the defendant Anieritrade's actions and/or omissions, Plaintiff

and the Anieritrade Subclass suffered damages including, but not limited to, lost profits, loss of

business, amounts of overpayments and interest, in an amount to he proven at trial.

FOURTH CLAIM FOR RELIEF (Against Defendant Ameritrade for Breach of

Common Law Covenant of Good Faith and Fair Dealing)



911. Defendant Ameritrade was obligated to act in good faith, to deal fairly, and to

adhere to the terms and spirit of the agreements made between the Ameritrade Subclass

members, including Plaintiff, as there has long been recognized that an implied covenant of good

faith and fair dealing exists between parties to a contract.

92. These obligations included, under the circumstances, that defendant Ameritrade

act in good faith and deal fairly by not taking advantage of and benefiting from the failure to

execute option trades at the prices offered so that Plaintiff and the Ameritrade Subclass would

receive their respective full consideration to which they were entitled,

93. Defendant A.meritrade violated the implied covenant of good faith and fair

dealing that accompanied its performance of, and obligations under, the Anieritrade agreement,

28


by benefiting from not executing Plaintiffs and the Ameritrade Subclass' orders at the prices at

which Ameritrade offered it would.

94. Plaintiff and the other members of the Ameritrade Subclass have been damaged

by defendant Ameritrade's breaches of the implied covenant of good faith and fair dealing, in an

amount to be proven at trial.

FIFTH CLAIM FOR RELIEF (Against Defendant .Ameritrade for Breach of Fiduciary Duty)

95. Plaintiff repeats and realieges each and every allegation contained in all of the


96. Ameritrade had a fiduciary responsibility to Plaintiff and the Ameritrade Subclass

to seek alternate routing market maker venues to fulfill execution and order handling standards

governed by the regulatory agencies.

97. As a fiduciary, defendant Ameritrade owed Plaintiff and the Ameritrade Subclass

duties of loyalty, due care and fair dealing including, protecting Plaintiffs and the Ameritrade

Subclass' interests; to refrain from doing any acts irudous to, or which would deprive

Ameritrade Subclass members of, any profit or advantage, and to not elevate Arneritrade's or its

affiliates, such as Knight, interests, ahead of Plaintiff and other members of the Ameritrade

Subclass.

98. Ameritrade failed, throughout the entire Class Period, to implement the foregoing

responsibilities and to protect the assets of their client base, past and present.

99. As a direct and proximate result of defendant Ameritrade' s breaches of fiduciary

duties, Plaintiff and the other members of the Ameritrade Subclass suffered damages in an

amount to be proven at trial.

29


SIXTH CLAIM FOR RELIEF Against The Options Specialist Defendants For Breach of Contract)



101. Defendants, by quoting prices through their respective electronic transfer system,

have made numerous offers to Plaintiff to buy or sell options contracts at specified prices.

102. Plaintiff, by submitting orders that specifically accepted the electronically

displayed quote or by otherwise "clicking" on the quoted prices posted by the Defendants that

appeared on her computer screen, accepted the offers of the Defendants, thereby creating legal

contracts.

103. The Defendants breached these contracts by refusing to execute option

transactions when Plaintiff either submitted orders that specifically accepted the electronically

displayed quote or otherwise "clicked" on prices transmitted through her respective electronic

transfer systems.

104. As a direct result of the defendants' actions and/or omissions, Plaintiff and the

Class suffered damages including, but not limited to, lost profits, loss of business, amounts of

overpayments and interest, in an amount to be proven at trial.

BASIS OF ALLEGATIONS

105. Plaintiff makes the foregoing allegations on information and belief except those

pertaining to herself, which are based upon Plaintiff's personal knowledge. Plaintiff's

information and belief is based upon the investigation conducted by her attorneys, which

included, inter a/ia, a review of various SEC filings and reports, press releases, media reports,

statements made by certain of defendants and\or their agents, relating to the acts and practices

30


alleged herein, and pleadings and litigation in other cases that relate to the acts and practices

alleged herein.

PRAYER FOR RELIEF

WHEREFORE, Plaintiff respectfully requests that this Court grant the following relief:

A. Certifying this case as a class action pursuant to Fed. R. Civ. P. 23(b)(2) and (3)

and certifying Plaintiff as the Class Representative and her chosen counsel as Class Counsel;

B. Awarding monetary damages and/or rescissionary relief against all defendants,

jointly and severally, in favor of Plaintiff and other members of the Class for all losses and

damages suffered as a result of the acts and transactions complained of herein; and

C. Awarding Plaintiff the costs of this action together with reasonable attorneys'

fees, and such other and further relief as this Court deems necessary and proper.

DEMAND FOR TRIAL BY JURY

Pursuant to Rule 38(b) of the Federal Rules of Civil Procedure, Plaintiff demands

a trial by jury on all questions of fact raised by the Complaint.

Dated: December'), 2004

LOVELL STEWART HALEBIAN LLP

6 By: John Ilebian (JH-8005) Fredeti$k W. Gerkens, III (FW77595) 500 Fifth Avenue New York, New York 10110 Tel: 212-608-1900

31


SQUITIERI & FEARO.N LLP

By: Olirnpio Lee Squieri (OLS4 684) Daniel R. Lapinski (DRL7447) 32 East 57th Street, 17th Floor New York, New York 10022 Tel: (212) 421-6492 Counsel for Plaintiff and the Class

32


LOVELL STEW?RT HALER IAN LLP

CERTIFICATION OF NAMED PLAINTIFF PURSUANT TO FEDERAL SECURITIES LAWS

I, Radassah Gurfein, ("Plaintiff") declare as to the claims asserted under the federal securities laws, that:

Plaintiff has reviewed the complaint and authorized its filing.

1. Plaintiff did not purchase the security that is the subject of this action at the direction of plaintiff's counsel or in order to participate in this private action.

2. Plaintiff is willing to serve as a representative party on behalf of the class, including providing testimony at deposition and trial, if necessary.

3. Plaintiff's transactions in the securities that are the subject of this action during the Class Period are as follows:

Secur it

Transaction Price Date

SEE ANNEXED SCHEDULE

4. Plaintiff has sought to serve or served as a representative party for a class in the following actions filed under the Securities Exchange Act of 1934 or Securities Act of 1933

subsequent to December 22, 1995; NONE

5. Plaintiff will not accept any payment for serving as a representative party on behalf of the class beyond the Plaintiff's pro rata share of any recovery, except such reasonable costs and expenses (including lost wages) directly relating to the representation of the class as ordered or approved by the court,

I declare under penalty of prjury that the foregoing is true and correct. Executed this day of December, 2004, at Englewood, New Jersey. (City) (State)

Signature

I


SCHEDULE OF TRANSACTIONS OF HADASSAH GURFEIN

Transaction! Security! Amt of Security Attempted Transaction

FHAXT - 50 Forest Labs Dec. 100 put bought FHAXT - 50 accepted bid to sell

not executed

exercised put option Forest Labs common shares - 100 bought Forest Labs common shares - 4,900 bought Forest Labs common shares - 5,000 sold

Price Date

$0.90 12/4/2002

$7.70 12/6/2002

$94.90 12/6/2002

$94.97 12/6/2002

$100.00 12/6/2002

FHANQ - Forest Labs Feb 85 put FHANQ - 20 bought

FHANQ-20 bought

FHANQ - 10 bought FHANQ - 25 bought

FHANQ - 25 bought

FHANQ - 100

accepted bid to sell not executed

FHANQ - 25

'U

2 for I stock spit FHANV -150

sold

$6.00

10/11/2002

$4.20

10/16/2002

$4.20

10116/2002

$4.10

10/16/2002

$2.00

11/19/2002

$4.50

12/6/2002

$3.00

12/6/2002

$0.20

1/21/2003

11 1 Case 1:04-cv-09526-LLS Document 1 Filed 12/03/04 Page 39 of 55 9/15/03

INDIVIDUAL PRACTICES OF JUDGE LOUIS L. STANTON

Unless otherwise ordered before Judge Stanton shall be the following practices:

by Judge Stanton, matters conducted in accordance with

1. Communications With Chambers

A. Letters. Except as otherwise provided below, communications with chambers shall be by letter, with copies simultaneously delivered to all counsel. Copies of correspondence between counsel shall not be sent to the Court.

B. Telephone Calls. In addition to Paragraph 1(D) below, telephone calls to chambers are permitted. For matters other than docketing, scheduling or calendaring, call chambers at (212)805-0252.

C. Faxes. Faxes to chambers are not permitted.

D. Docketing, Scheduling, and Calendar Matters. For docketing, scheduling and calendar matters, call chambers at (212)805-0252.

E. Requests for Adjournments or Extensions of Time. All requests for adjournments or extensions of time must state (1) the original date, (2) the number of previous requests for adjournment or extension, (3) whether these previous requests were granted or denied, and (4) whether the adversary consents, and, if not, the reasons given by the adversary for refusing to consent. If the requested adjournment or extension affects any other scheduled dates, a proposed Revised Scheduling Order (reflecting only business days) must be attached. If the request is for an adjournment of a court appearance, absent an emergency it shall be made at least 48 hours prior to the scheduled appearance.

F. Inquiries. If a matter is not decided within sixty days of the time it is fully submitted, or its pendency undecided creates particular problems for any party, counsel may write so advising the court.

2. Motions

A. Pre-Motion Conferences in Civil Cases. For discovery motions, follow Local Civil Rule 37.2. For motions other than discovery motions, a pre-motion conference with the court is required before making any motion, except pplications for temporary restraining orders


or for injunctive relief, motions made by persons in custody, motions to dismiss in lieu of an answer, motions for reduction of sentence, motions for reargument, motions to affirm or vacate an arbitration award, Pro Hac Vice motions, and appeals from a magistrate judge's rulings. To arrange a pre-motion conference, the moving party shall submit a letter not to exceed three pages in length setting forth the basis for the anticipated motion.

B. Courtesy Copies. Courtesy copies of all motion papers, marked as such, should be submitted to chambers at the time papers are served.

[C. Memoranda of Law. Omitted.]

D. Filing of Motion Papers. Motion papers shall be filed promptly after service.

B. Oral Argument on Motions. Parties may request oral argument by letter at the time their moving or opposing or reply papers are filed. The court will determine whether argument will be heard and, if so, will advise counsel of the argument date.

F. Paragraphs A and D above do NOT apply to any of the motions described in Federal Rule of Appellate Procedure 4(a) (4) (A) . A pre-motion conference is not required before making such motions, which should be filed when served.

3. Pretrial Procedures

Judge Stanton's form for pre-trial orders differs substantially from that of other judges of this Court. Instructions for preparing the pre-trial order, along with a sample pre-trial order and trial procedures, will be given to the parties at a pre-trial conference and also may be obtained by calling chambers.

2


UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK

Plaintiff(s),

- against -

CONSENT TO PROCEED BEFORE UNITED STATES MAGISTRATE JUDGE

Civ.

Defendant(s). -- --

x

IT IS HEREBY STIPULATED by the undersigned:

1. All parties consent, pursuant to 28 U.S.C. 636(c) and Fed. R. Civ. P. 73, that a United States Magistrate Judge conduct all further proceedings in this action, including any trial and entry of final judgment.

2. Any appeal from a judgment entered in this case will lie to the Court of Appeals for the-Second Circuit as from any other judgment of the district court pursuant to 28 U.S.C. 636(c)(3) and Fed. R. Civ. P: 73(c).

Attorney(s) for Plaintiff(s) Address Telephone

Attorney(s) for Defendant(s) Address Telephone

Attorney(s) for Address Telephone

Attorney(s) for Address Telephone

(Separately executed forms may be submitted. See Fed. R. Civ. P. 73(b).)

U.S.D.J.

Magistrate Judge was assigned this case on

For: Clerk U.S.D.C. S.DN.Y. SDNY Web 4199


Please Read Immediately ****

You must read and comply with all of the instructions on the attached sheet. Your case CANNOT be opened until you have correctly followed ALL of the required steps.


J, MICHAEt MFMAHON UNITED STATES DISTRICT COURT WWW.NYSD.UGCOURTS Coy CLEFF OF COURT

SOUTHERN DISTRICT OF NEW YORK June ]. 2004 600 PEARL STREET, NEW YORK, NY 10007

300 OUARROPAS STREET, WHITE PLAINS, NY 10601

3rd Amended Instructions for Filing an Electronic Case or Appeal Important - your new case is an electronically filed case (ECF case) and you will be required to file documents electronically instead of on paper (with certain exceptions listed below). If you don't have your ECF password yet, you should regi ster now (no fee required) on the CM/ECF page of the Court's website at www.nysd.uscourts.gov Please follow the instructions below.

ECF Judges: Baer *** Caste! ** Griesa '"' Knapp '"' McMahon ' Preska * Batts * C edarbaucn*** Haight ** Koelti * Motley *** Rakoff** Berman Chin ''* Heilerstein Kram '" Mukasey * Robinson * Brieant * Conner * Hoiwell Leisure ** Owen *** Sand Buchwald 'i" Cote '"' Jones ** Lynch ** Patterson *** Scheindlin ** Carter "*' Daniels ** Kaplan * Marrero ** Pauley ** Sprizzo Casey ** Duffy Keenan '' McKenna '"' Pollack ** Stanton

* ECF Wave 1 Judge, assigning new cases filed on or after December 2, 2003 to the ECF system. ** ECF Wave 2 Judge, assigning new cases filed on or after March 1, 2004 to the ECF system.

ECF Wave 3 Judge, assigning new cases filed on or after June 7, 2004 to the ECF system.

Stein * Swain ** Sweet * Wood ** Magistrate-Judges *

Important note on non-ECF cases: Older cases filed prior to the above dates, as well as Pro Se cases, Habeas Corpus cases, Social Security cases, and Multi-District Litigation will not be electronically filed and should be filed on paper. Do not file documents electronically in cases that are not assigned to the ECF system.

Instructions

(1) Electronic cases are opened and service of the initiating documents (complaint, notice of removal, etc.) is accomplished in the traditional manner, on paper.

(2) Important - In addition to serving the initiating documents in the traditional manner, on paper, you are also required to deliver paper copies of the following documents to all other parties (copies available at the courthouse, & on our website):

(a) The assigned Judge's Individual Rules (b) USDC/SDNY Instructions for Filing an Electronic Case or Appeal (this document) (e) LJSJJCISDNY Procedures for Electronic Case Filing (d) USDCISDNY Guidelines for Electronic Case Filing.

(3) Within 24 hours of the assignment of a ease number, you are required to email to the Clerk of Court the initiating documents in Adobe Acrobat adf format only. Failure to do so within 24 hours will delay adding your case to the computerized ECF docket. Include a F.R.C.P. Rule 7.1 Statement (if applicable) and any exhibits. The case number, the Judge's initials, and "ECF CASE" must appear in the document's case caption. Each document must be in a separate pdf file no lamer than 2.5 megabytes (separate large computer files into smaller parts if necessary, and label accordingly). When sending email, the subject line of the email & the file name of the pdf should list only the case number followed by a document description (ex. "Re: 01ev! 234-complaint"). Send the email (do not file on the ECF system) to:

(a) For new civil cases assigned to a Manhattan Judge, email a pdf copy of the documents to

case openingsnysd.uscourts .gov

(b) For new civil cases assigned to a White Plains Judge, email a pdf copy of the documents to

wpcicrknysd.uscourts.gov Page 1 of 2


USDC/SDNY Instructions for Filing an Electronic Case or Appeal

Page 2 af2

(4) File the Affidavit of Service for the initiating document (complaint, notice of removal, etc.) in the following manner:

(a) electronically file the Affidavit of Service for the initiating document on the ECF system (do not send by email), (b) file the original Affidavit of Service with summons attached in the traditional manner, on paper with the Clerk.

(5) All subsequent documents, including the Defendant's Answer, must be filed electronic.jiy on the ECF system at ecf.nysd.uscourts.gov . Electronic filing involves using your ECF password to docket the item directly into the ECF system. Electronic filing is not the same as email to the Clerk. Read the Judge's Individual Rules to determine if courtesy copies (on paper) are required.

(6) Appeals will be assigned to the ECF system only if the original case was also electronically filed. File the appeal in the traditional manner, on paper. Then within 24 hours of filing the paper copy of your Appeal at the courthouse, you are required to email to the Clerk of Court an electronic copy of the Appeal in pdf format. Include any exhibits. Each document must be in a separate pdf file no larger than 2.5 megabytes. The District Court case number, the Judge's initials, and "ECF CASE" must appear in the document's case caption.

When sending email, the subject line of the email should always list the case number followed by a document description (ex. "Re: 0lcv1234-appeal"). Send the email (do not file on the ECF system) to:

(a) For appeals from an ECF case assigned to a Manhattan Judge, email a pdf copy of the appeal to

appealsnysd.uscourts.gov

(b) For appeals from an ECF case assigned to a White Plains Judge, email a pdf copy of the appeal to

[email protected]

(7)

Follow all the rules for Electronic Case Filing (available at www.nysd.uscourts.gov ):

(a) SDNY Procedures for Electronic Case Filing (d) Local Rules of this Court, and (b) SDNY Guidelines for Electronic Case Filing (e) Federal Rules of Civil Procedure (c) Individual Rules of the Assigned Judge

V Learn More About Electronic Case Filing at vwjsd.nscourts.tov

/

Click on the "CM-ECF" page for the official ECF filing rules, training information, computer requirements, and more.

/

Attorneys should use the "Attorney Registration" page to register on-line for a SDNY ECF password (no fee). Your ECF password will be sent to you by email. You must have an ECF password from SDNY District Court to file documents electronically.

/

Sign up now for a SDNY PACER account if you don't already have one, Call (800) 676-6856, or go to http :1/par er.psc . uscourts . gov

/

Electronically file documents in ECF cases over the Internet at ecf.nysd.uscourts.gov

/

Don't have a computer or scanner? Bring your ECF password and the paper documents to the courthouse, and you can use our public computers to electronically file your documents. Call the ECF Help Desk for more information.

/

The ECF Help Desk is available to answer your ECF questions from 8:30 AM to 7:30 PM at (212) 805-0800, and from 8:30 AM to 5:00 PM at (914) 3904204, and by email at [email protected]

WWNYSD.USCOURTS.GOV


A.

J. MICHAEL MCMAHON UNITED STATES DISTRICT COURT ( WWW.NYSD.USCOURTS.GOV

SOUTHERN DISTRICT OF NEW YORK December 1, 2003 500 PEARL STREET, NEW YORK, NY 10007

Guidelines for Electronic Case Filing-

The following guidelines apply to all electronically filed cases and have been written by the Clerk of Court under the authority of this Court's Procedures for Electronic Case Filing..

Q. What is the web address for the SONY ECF system?

The new ECF system will be on the Internet at bttps:/Jeef.nysd.uscourts.gov

Q. Should I use Netscape Navigator or Internet Explorer to use ECF?

Only Netscape Navigator 4.6, 4.7, or Internet Explorer 5.5 have been certified for use with the ECF program. Other browsers have not been certified, and while they may work part of the time, they may also cause errors in the middle of filing.

Q. is there a limit to the size of a document that can be filed on EcF?

Yes, 2.5 megabytes (approximately 50 pages). If your file is too large, the system will reject it. The solution is to separate an oversized file into 2 or more parts and docket it in a single event. Simply label each file 1, 2, 3, etc. In all cases assigned to the ECF system, no single document totaling more than 15 megabytes (even if separated into individual computer files) shall be electronically filed without prior permission of the Court.

Q. Can I file documents that originate on paper and are then scanned to create a pdf file?.

Yes, but.....the ECF system will not accept any single document that is larger than 2.5 megabytes, or approximately 50 pages. Wherever possible, you should create pdf files directly from a word. processing program. When you create a pdf file from a scanned paper document, the file size is significantly larger. This may prevent you from filing it as a single document on the ECF system and will also take up unnecessary computer memory on your own computer system. Besides, it's easier to create a pdf directly from a word processor.

Q. Who can file documents on ECF?

Only an attorney admitted to practice in SDNY, and registered to use the ECF system, or an "authorized agent" of the filing user, is permitted to file (ECF Procedures, 8b). A filing will be deemed to be the sole responsibility of the filing user whose log-in and password were used to file the document. Be careful whom you allow to use your ECF log-in and password. Attorneys can register on-line to use ECF at www.nysd.uscourts.gov

Q. Can an attorney admitted Pro Hac Vice file documents electronically?

Yes. Immediately after a motion to be admitted pro hac vice is granted, the attorney is required to register to be an ECF Filing User at www.nysd.uscourts.gov


SDNY Guidelines for Electronic Case Filing

Q. How do I sign an electronically filed document?

The filing user's ECF log-in and password serve as his/her electronic signature. (ECF Procedures #8). The filing user should place an S/ in place of the signature. Signatures for all other persons must be scanned in order to capture the actual ink signature.

Q. Will older cases be assigned to the ECF system?

No. Only those cases filled after the ECF system goes live are subject to electronic filing. Cases filed before the ECF system goes live will not be converted to ECF cases. You will be able to view the docket sheets in older cases on-line, but not the documents.

Q. Which cases will be ECF cases?

Civil and criminal cases filed after December 1, 2003, will be subject to electronic filing. Social Security cases, Habeas Corpus cases and Pro Se cases will not be assigned to the ECF system.

Q. Which Judges will entertain ECF cases?

Eventually all the courts Judges and Magistrate-Judges will be able to entertain IECF cases; Groups ofjudges will be added to the ECF system over a 12 month period. The first group Will include Judges Balls, Brieant, Conner, Kaplan, Koeltl, McMahon, Mukasey, Preska, Robinson, Stein, Sweet, and all the Court's Magistrate Judges. Parties are directed to refer to each judge's individual rules (available on the court's website) to learn whether a particular case Will be assigned to the ECF system.

Q. flow do I view a document in an ECF case?

Use an approved Internet web browser (see above) and go to https:llecf.nysd.uscourts.gov Click on Que

case 1:04-cv-09526-lls document 1 filed 12/03/04...

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