I see it as a matter of truth that the drive to clean up the various scandals on Wall Street -- corporate governance scofflaws, bad accounting, market fiddling -- would come not by the threats from the SEC, the needling of New York Attorney General Eliot Spitzer, nor the collective protests of the individual investor class. All are important, but they're either fractured or they have an interest in keeping the system largely intact.

The SEC chief who oversees a witch-hunt that completely roils the stock market is not long for his post, unfortunate as it may seem. People (and politicians) simply do not display the willingness to accept short-term pain that will yield a substantially more beneficial overall system. As such, for the big investment banks, the market makers, and the brokerages that do game the system, any penalties they must pay for wrongdoing are treated as little more than a cost of doing business.

It seems that the most direct route to cleaning up Wall Street is for the big money investors -- i.e., the pensions and the funds -- to start swinging their weight around. Sadly, the number of activist funds and pension managers is relatively low. Affiliated Managers Group's (NYSE:AMG) Tweedy Browne is one, as is TIAA-CREF. But the biggest beast on the block is CalPERS, the $154 billion California public employees pension. And apparently, after CalPERS's recent protest against the proposed overhaul at the New York Stock Exchange was effectively ignored, the big dog has had enough.

Yesterday, CalPERS launched a broadside at the NYSE and its specialist system, suing them for $150 million for improper trading. CalPERS has also taken the unusual stance of inviting private and institutional investors alike to join the suit.

The action names the NYSE and targets specialist firms LaBranche (NYSE:LAB), Goldman Sachs' (NYSE:GS) Spear, Leeds & Kellogg division, Van der Moolen (NYSE:VDM), FleetBoston (NYSE:FBF), Bear Stearns' (NYSE:BSC) minority holding Bear Wagner Specialists, Susquehanna International, and Performance Specialist Group.

CalPERS' suit (Adobe Acrobat required) states that the NYSE "deliberately failed to halt, expose or discipline the illegal trading practices" in violation of the Exchange Act of 1934 and the Big Board's own rules. The NYSE refused to comment on the suit, but interestingly the SEC's spokesperson called it "unfounded." Several media outlets, most notably TheWall Street Journal, have reviewed an SEC document issued in October and noted that the SEC strongly rebuked the NYSE for failures in its self-regulatory structure to properly police and discipline "violative conduct." That sort of language from the SEC suggests, to me at least, that CalPERS' suit does in fact have some merit.

I don't have a handicapper's intuition on what will happen with the lawsuit, whether it will be granted class action status or how wide it will reach. I do know that CalPERS' disgust means that even for a short time, bad behavior on the Big Board might finally have reached a level of risk that creates a deterrence.