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Firms investors settle on boom ipos { June 27 2003 } Original Source Link: (May no longer be active)
http://www.suntimes.com/output/business/cst-fin-tech27.htmlhttp://www.suntimes.com/output/business/cst-fin-tech27.html
Firms, investors settle on boom IPOs
June 27, 2003
BY DAVID E. ROVELLA
NEW YORK--More than 300 companies that went public during the Internet boom of the late 1990s reached a $1 billion settlement with investors who said their stock offerings were rigged.
The settlement announced Thursday in New York resolves claims that the companies conspired with 55 investment banks to drive up shares in their initial public offerings. Investors' claims against the banks are still pending.
Investment banks including Goldman Sachs Group and Credit Suisse First Boston that were IPO underwriters now come under pressure to settle since the companies will cooperate with investors and turn over documents and other evidence that can be used against them, lawyers said.
''The primary target in these cases is the underwriter community,'' said Melvyn Weiss of Milberg Weiss Bershad Hynes & Lerach, which represents the investors. ''This gives us a huge booster shot in our litigation against them.''
Companies involved in the settlement include Red Hat, Drugstore.com Inc., Handspring, CNET Networks, Corvis, Marketwatch.com, NextCard, Interwoven, Agilent Technologies, Brocade Communications Systems, Martha Stewart Living Omnimedia, Expedia and Priceline.com.
Investors who bought shares after trading began in the IPOs say banks had secret deals requiring their clients to keep buying as prices rose, creating artificial demand until the stocks eventually collapsed. Recipients of IPO shares had to kick back some profits to brokers, and the banks failed to reveal those secret payments, the plaintiffs claimed.
Forty-two primary insurers are obligated to pay the companies' settlement, though they aren't required to hand over any money until the claims against the banks are resolved, according to investor lawyer Rebecca Katz.
Lawyers for investors declined to say whether they were in settlement negotiations with the banks. ''That's all confidential,'' Weiss said.
The agreement with the companies ''cleans up'' the lawsuit, said Fred T. Isquith, another investor lawyer. ''It allows us to take the case to the source of the misconduct. Now we can take aim.''
As part of the settlement, companies suing their IPO underwriters agreed to assign their claims to the investors, a statement by investor lawyers said. For the banks, that means their former allies now ''are likely to be helpful to the plaintiffs,'' said Larry Soderquist, a securities law professor at Vanderbilt University in Nashville.
U.S. District Judge Shira Scheindlin is overseeing the IPO suits and must approve the settlement.
The suits also target analysts at the banks, accusing them of issuing rosy projections of the start-ups' prospects to gain lucrative banking business for their firms.
The settlement follows almost 18 months of mediation and was brokered by Nicholas Politan, a former federal judge from New Jersey, according to a statement by lawyers for the investors.
If the plaintiffs ultimately recover more than $1 billion from the underwriters, the companies' obligations will be satisfied by whatever investors get from the banks, according to the statement.
Calls to Gandolfo DiBlasi of Sullivan & Cromwell, the investment banks' lead lawyer, weren't returned.
Lawyers said it might be months before proposed settlements resolving all 309 cases come before Scheindlin. Some investment banks may object to the agreement, lawyers said.
Spokesmen for Merrill Lynch & Co., UBS PaineWebber, Morgan Stanley, Bear Stearns and Credit Suisse First Boston all said their firms had no comment on the lawsuit settlement. Other investment banks that are defendants in the case could not immediately be reached for comment.
Bloomberg News
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