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Jp morgan rigged ipos during 1990s internet stock boom Original Source Link: (May no longer be active)
http://quote.bloomberg.com/apps/news?pid=10000006&sid=aL7gIWAcBLr0&refer=homehttp://quote.bloomberg.com/apps/news?pid=10000006&sid=aL7gIWAcBLr0&refer=home
JPMorgan Will Pay $425 Million to Settle IPO Suits (Update1)
April 20 (Bloomberg) -- JPMorgan Chase & Co., one of dozens of banks investors sued for rigging initial public offerings during the 1990s Internet stock boom, agreed to pay $425 million to settle the case, the bank said.
JPMorgan, the No. 3 U.S. bank by assets, would be the first to resolve the allegations, leaving Morgan Stanley, Credit Suisse, and Goldman Sachs Group Inc. among the remaining defendants. The agreement may pressure more banks to settle, as happened in suits against Enron Corp. and WorldCom Inc.
``If you look at some of the other big settlements involving the big investment banks, you'll see that the first bank to break ranks and settle obviously puts pressure on the others,'' said Michael A. Perino, who teaches securities law at St. Johns University School of Law.
Seventeen banks that were sued over the WorldCom accounting fraud paid a total of more than $6 billion after Citigroup Inc. was first to settle. The largest payment in a similar class- action was the $7.2 billion accord in a securities-fraud case brought by Enron investors. Most was paid by Enron's banks.
``The deal with JPMorgan implies an aggregate recovery in the billions,'' said Howard Sirota, one of the lead lawyers in the case and a partner at New York-based Sirota & Sirota. ``It will likely have a catalytic effect on the remaining defendants.''
JPMorgan spokesman Joe Evangelisti said that an agreement had been reached ``in principle.''
``It would have no material adverse effect on our financial results,'' he said.
The agreement is subject to approval by the investors and by two judges presiding over the cases in federal court in New York.
Collapsed IPOs
The claims were filed after technology stocks that went public and soared during the bull market collapsed in 2000 and 2001. Lawyers for the investors said they're seeking billions of dollars in damages.
In one class action, investors claim the banks manipulated the market in more than 300 IPOs for technology companies such as Razorfish Inc. and Red Hat Inc. The securities-fraud case names dozens of underwriters, including JPMorgan, as defendants. The technology companies also were named.
In a second suit, 12 banks were accused of colluding in an industry-wide conspiracy to rig IPOs. JPMorgan is also a defendant in that antitrust case.
A key claim in both the antitrust and securities-fraud suits is that investors seeking IPO shares in companies such as Equinix Inc. and Firepond Inc. were required to buy more stock, at a higher price, after the initial sale. This practice inflated share prices and boosted bank profits, the suits claim.
The antitrust case alleges that the banks conspired to rig the market in that fashion.
First-Day Gains
Hundreds of Internet start-ups were rushed to market during the IPO frenzy of the late 1990s and 2000. First-day gains from IPOs averaged 87 percent in 1999 and 71 percent in 2000, according to IPO researcher CommScan LLC, and underwriters pocketed billions of dollars in fees and commissions.
VA Linux Systems Inc.'s shares soared sevenfold on the first day of trading after an IPO led by Credit Suisse in December 1999. Today the shares of that company, now known as VA Software Corp., trade at about $5.76, down from $242.88 just after the IPO.
The excesses of the stock-market bubble continue to haunt large U.S. banks such as JPMorgan, which has paid more than $4.2 billion to settle claims it published biased research and helped Enron and WorldCom defraud investors.
Shares of JPMorgan fell 2 cents to $42.60 in composite trading on the New York Stock Exchange. They were unchanged in trading after U.S. markets closed.
The securities case is: In Re: IPO Securities, 21-MC-92, U.S. district Court, Southern District of New York.
Last Updated: April 20, 2006 16:50 EDT
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