Federal Court Dismisses Lawsuit against DTCC.

NEW YORK -- The Depository Trust & Clearing Corporation (DTCC) announced today that by order entered May 31, 2006, the United States District Court for the District of Nevada, Las Vegas, has dismissed Whistler Investment, Inc.'s lawsuit against DTCC and its subsidiaries. The dismissal was "with prejudice," meaning that Whistler may not seek to amend its complaint.

In granting DTCC's motion to dismiss, the court agreed with DTCC that clearing and settlement rules promulgated by DTCC's subsidiaries and approved by the U.S. Securities and Exchange Commission (SEC) cannot be challenged under state law. Because DTCC's Stock Borrow Program (SBP), the target of the lawsuit, is explicitly approved by and subject to the ongoing oversight of the SEC, the legal challenge is barred by the Supremacy Clause of the U.S. Constitution, on grounds of both "field" and "conflicts" preemption.

This order is the fourth time in the last year that a court has ruled that plaintiffs are not permitted to sue DTCC or its subsidiaries for carrying out functions that are regulated and overseen by the SEC. These are among a number of suits that have been brought, largely by bulletin board traded companies, who seek to blame their poor stock performance and failed business models on DTCC and the national market system for clearance and settlement. To date, except for one case where DTCC's dismissal motion is pending, all of the cases either have been dismissed by the courts or withdrawn by the plaintiffs.

"We are very pleased that judges across the country continue to reject these meritless claims," said Larry Thompson, DTCC's General Counsel. "Last year, DTCC settled more than $1.4 quadrillion in securities transactions. We play a pivotal role in the U.S. capital markets by providing the capacity, certainty and reliability required to clear and settle today's enormous trading volumes and maintain the integrity and soundness of the U.S. capital markets. All of our operations and activities are carried out under SEC-approved rules and are subject to strict federal regulatory oversight. This arrangement ensures uniformity and accountability in clearing and settling securities transactions and, in turn, provides the stability that is essential to the efficient functioning of our capital markets."

In ordering the dismissal of the Whistler case, Judge Robert C. Jones explicitly adopted the reasoning of Judge Kenneth L. Ryskamp of the United States District Court for the Southern District of Florida in the case of Capece v. DTCC. In that case, which was dismissed by the court on October 11, 2005, Judge Ryskamp specifically found that, "Allowing Plaintiffs to assert a state law cause of action against Defendants (DTCC and its subsidiaries) would require Defendants to tailor their practices with regard to the SBP (stock borrow program) to satisfy each state's formulation of the standard of care in a negligence action. Such a result would destroy the Congressionally-mandated uniform system governing securities trading."

Thompson concluded, "By dismissing the Whistler case, Judge Jones has reaffirmed the importance and value of having clearly delineated authority in the area of market operations. We completely agree with this result, as does the SEC which has weighed in unequivocally on this issue."

In February 2006, the SEC filed a "friend of the court" brief in support of DTCC in one of the dismissed cases, Nanopierce Technologies Inc. v. DTCC, urging the Supreme Court of Nevada to affirm the lower court decision dismissing the case. The Nanopierce case, which makes identical claims to those in the Whistler action, is pending on appeal before the Supreme Court of Nevada. The SEC brief can be accessed at: http://www.sec.gov/litigation/briefs/nanopiercesecbrief.pdf. Additionally, in a May 12, 2006 follow-up letter to the Supreme Court of Nevada the SEC wrote, "Plaintiffs' claims are preempted because evaluating these claims of alleged defects has been entrusted by Congress to the (SEC), not to state courts."

In its letter to the Nevada court, the SEC stated, "The (SEC) found that the clearance and settlement system complies with the requirements of the Exchange Act when it approved the system more than twenty years ago, and it has continued to be of that view as it has exercised oversight responsibility ever since."

The SEC also stated that it "has adopted Regulation SHO for the purpose of preventing abusive naked short selling, and if it concludes that further steps are required, it will take them."

"The court's decision and the forceful statements made by the SEC underscore what DTCC has been saying since this misguided litigation campaign began," said Thompson. "Short selling and naked short selling are trading strategies and are not connected to the post-trade clearance and settlement of securities transactions. There is nothing in DTCC's operating procedures, activities or conduct that justifies these frivolous suits."

In the Whistler case, DTCC has sought to impose monetary sanctions against the plaintiffs' counsel for having brought frivolous litigation. That application will be pursued vigorously before Judge Jones.

About DTCC

DTCC is the parent company for the nation's principal clearing and settling firm, National Securities Clearing Corporation (NSCC) and the nation's principal securities depository, The Depository Trust Company (DTC). NSCC is registered with the SEC to record, clear, and settle equity, bond, money market, government, mortgage-backed, insurance, and other security transactions. NSCC's services are utilized by the country's major brokerage firms, the U.S. government, the New York Stock Exchange, NASDAQ, the American Stock Exchange, and other markets. DTC is the nation's principal securities depository. DTCC's clearing and settlement subsidiaries are regulated by the SEC, which approves the rules under which they operate.