CalPERS, the nation’s largest public pension fund, filed a lawsuit Tuesday against the New York Stock Exchange and seven “specialist” firms, alleging that the Exchange looked the other way as the specialists cheated investors of millions of dollars through improper trading.

The California Public Employees Retirement System, which invests $60 billion in pension money for 1.4 million public employees and their families, is seeking damages on behalf of every shareholder who has traded stocks on the New York Stock Exchange. The suit, asks the court to consolidate other class action lawsuits on the issue and designate CalPERS as the lead plaintiff on behalf of all harmed shareholders.

“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, President. “Obviously, the NYSE had every reason in the world to leave specialist firms alone, since specialists have seats on the exchange, and since management benefited financially through the type of huge compensation packages, such as was provided to Dick Grasso, who resigned from the exchange after his salary became public. The specialist trading practices are the poster child for failed regulation.”

CalPERS’ lawsuit comes in the wake of reported SEC allegations that the specialists engaged in practices known as frontrunning and inter-positioning. Although the NYSE has rules that prohibit these practices, the exchange rarely takes the appropriate level of action.

(via CalPERS)