By Kyle Peterson
CHICAGO (Reuters) - Former New York Stock Exchange president Gerald Putnam on Thursday denied claims in court that he and two others cheated a former business partner out of $30 million to $50 million.
The case marks a clash of two well-known figures from the Chicago financial industry who were active in the migration of exchange trading from pits to computer screens.
Lewis Borsellino, a former Chicago Mercantile Exchange trader, sued Putnam and two co-defendants, MarrGwen and Stuart Townsend. Borsellino accused them of fraud when they bought him out of a partnership they had formed to create a now-defunct electronic trading firm, Chicago Trading & Arbitrage (CTA).
Borsellino's lawsuit alleges that a separate electronic trading company, Archipelago Holdings, which later merged with the NYSE and brought Putnam a fortune, is a CTA offshoot.
He said he was tricked into selling his share in CTA for a fraction -- $250,000 -- of what he said would have been fair value of $30 million to $50 million for what should have been his stake in Archipelago.
Interest in the case is intense in the secretive world of high-speed, high-volume traders in Chicago's derivatives markets like the CME and in global financial markets.
"We're talking about people who screwed one guy," said attorney Jon Loevy, who is representing Borsellino in the trial being held in the Circuit Court of Cook County, Illinois.
Borsellino 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, Loevy said.
Ed Ruff, an attorney representing Putnam and the Townsends, told the court that Archipelago was a completely separate company from CTA, that Borsellino never owned a stake in it, and that investor interest in Archipelago came well after the three had parted ways with Borsellino.
The $250,000 payment to Borsellino in 1998 was simply a settlement to get him to drop a previous lawsuit, Ruff said.
"This is nothing more than Mr. Borsellino trying to take a second bite of the apple," Ruff said.
(Reporting by Kyle Peterson, Editing by Peter Bohan and Steve Orlofsky)