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Net boom claims settled 1b { June 27 2003 } Original Source Link: (May no longer be active)
http://www.guardian.co.uk/business/story/0,3604,985926,00.htmlhttp://www.guardian.co.uk/business/story/0,3604,985926,00.html
Net boom claims settled for $1bn
David Teather in New York
Friday June 27, 2003
The Guardian
Lawyers suing more than 300 companies for their part in allegedly rigging stock market flotations at the height of the internet boom have reached a $1bn settlement.
The actions arose from claims that the companies secretly plotted to inflate the value of their shares during the late 90s, making millions of dollars of profits for themselves and leaving many investors penniless.
Yesterday's agreement is only a partial settlement. A second series of actions, against 55 investment banks which underwrote the initial public offerings, is continuing.
The allegations, made on behalf of hundreds of plaintiffs, are among an avalanche of claims that have emerged from investors hurt by the bursting of the technology bubble.
The plaintiffs have alleged that the banks and the companies, which included fallen internet stars such as Agile Software and Razorfish, made misleading statements about their prospects that artificially inflated the value of the shares during the IPOs.
They also claim that the banks took kickbacks from investors who were given access to the IPOs in the form of higher commissions, and that ordinary shareholders lost billions of dollars when the prices eventually collapsed.
The claims make reference to a practice called "laddering", whereby investors were allocated shares in return for a guarantee to buy further stock and keep the price moving higher.
The end of the stock market boom and the corporate scandals that emerged in the past two years have severely eroded investor confidence and sullied the reputation of Wall Street.
At the end of last year, 10 top investment banks agreed to pay $1.4bn to settle the claims that analysts offered overly optimistic research during the boom in order to win other business from the companies they covered. As part of that "global settlement" the banks agreed to overhaul some of their IPO practices. However, securities regulators are now targeting individuals at the banks.
There have also been a series of investigations into "spinning": allocating shares in sought-after IPOs to selected chief executives in return for investment banking business.
The latest settlement is with the companies that were taken to the market between 1998 and 2000. The insurers of the defendant companies will cover the costs of the $1bn payout.
But the money will not be paid until the second part of the case, with the investment banks, is settled.
Under the settlement, the plaintiffs will recover at least $1bn from the two parts of the suit. If the banks agree to pay more than $1bn, the companies will not have to pay anything. If the settlement with the banks falls below that level, the companies will make up the difference.
The plaintiffs were seeking more than $4bn from the banks, which include Goldman Sachs, Morgan Stanley, Credit Suisse First Boston and Citigroup.
The banks and companies came under pressure to reach a settlement last February when a federal judge rejected an attempt to have the case thrown out of court.
The partial agreement still needs approval by a federal judge.
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