U.S. News

Ex-NYSE president Putnam, 2 others ordered to pay $11 million in fraud suit

(Corrects headline to clarify nature of trial.)

CHICAGO (Reuters) - A jury said on Tuesday that former New York Stock Exchange president Gerald Putnam cheated his former partner out of millions of dollars in a business venture that was central to the migration of exchange trading from pits to computer screens.

Putnam and two others were ordered to pay $11 million to Lewis Borsellino, a former Chicago Mercantile Exchange trader who accused them of fraud when they bought him out of a partnership that created a now-defunct electronic trading firm, Chicago Trading & Arbitrage (CTA).

The verdict, delivered in the Circuit Court of Cook County, Illinois, marks a climax in the clash of two well-known figures from the Chicago financial industry.

“I’m glad the world knows that the former head of the New York Stock Exchange is a liar and a cheat,” Borsellino said after the trial.

Putnam declined to comment.

Borsellino said he was disappointed by the amount of the damages, but his attorney Jon Loevy said the jury had not awarded punitive damages and that he would seek that money separately.

Borsellino claimed that Archipelago Holdings, an electronic trading company, which later merged with the NYSE and brought Putnam a fortune, is a CTA offshoot and that he was entitled to $30 million to $50 million for what should have been his stake.

He sued Putnam and two co-defendants, MarrGwen and Stuart Townsend, claiming they tricked him into selling his share of CTA for $250,000 -- a fraction of its fair value.

Interest in the case is intense in the secretive world of high-speed, high-volume traders in Chicago’s derivatives markets such as the CME and in global financial markets.

Borsellino, author of the 2001 book “The Day Trader: From the Pit to the PC”, said he sold his CTA share in February 1998, unaware of an impending multimillion-dollar investment in Archipelago, which Putnam had set up with the Townsends. He said he was misled about the true value of CTA.

Archipelago later received a $50 million investment from Goldman Sachs and E-Trade.

Ed Ruff, an attorney representing Putnam and the Townsends, declined to answer a reporter’s questions after the trial.

The $250,000 payment to Borsellino in 1998 was simply a settlement to get him to drop a previous lawsuit, Ruff said earlier in the trial.

Reporting by Kyle Peterson; editing by Andre Grenon