SF Gate: Dot-com investors promised at least $1 billion in IPO fraud case covering 300 companies

From: Rakesh Bhandari (rakeshb@STANFORD.EDU)
Date: Thu Jun 26 2003 - 18:41:29 EDT

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Thursday, June 26, 2003 (AP)
Dot-com investors promised at least $1 billion in IPO fraud case
covering 300 companies
MEG RICHARDS, AP Business Writer

    (06-26) 15:09 PDT NEW YORK (AP) --
    Some of the hottest Internet companies of the 1990s boom tentatively
agreed Thursday to pay investors at least $1 billion to settle allegations
that the dot-coms' initial public offerings of stock were rigged to
benefit favored customers.
    The more than 300 companies also agreed to cooperate in the continuing
case against 55 brokerages accused of making the secret deals, which
allegedly were aimed at making big profits for the investors who were
allowed to get in early.
    The huge case involves 309 lawsuits filed by investors over IPOs between
1998 and 2000 at such former high-flying companies as Global Crossing,
MP3.com, Ask Jeeves and Red Hat.
    The dot-coms were accused of knowing about the deals and failing to
disclose them.
    Under the settlement, the companies guaranteed investors an overall
payment of at least $1 billion, but will not have to pay anything if the
brokerages settle for at least that much, said Melvyn I. Weiss, chairman
of a committee of plaintiffs' attorneys.
    The class, which has not been formally defined, will cover any investor
who bought shares at the time of the IPOs or in the aftermarket, up until
Dec. 6, 2000, he said. "This covers everybody who lost money. Most of our
lead plaintiffs are just ordinary people who are investors," he said.
    The dot-com companies' insurers will cover the settlement, which is
subject to court approval.
    The plaintiffs say the investment banks that underwrote the IPOs --
including J.P. Morgan, Credit Suisse First Boston, Morgan Stanley and
Smith Barney -- plotted to artificially inflate the value of IPO stocks.
    Among the techniques was a practice called "laddering," in which larger
blocks of stock were allocated to investors who promised to take still
more shares after the stock hit the open market.
    Also, analysts who worked for the investment banks were accused of
boosting dot-com stocks by deliberately issuing favorable research
    In addition, some investors were allegedly charged inflated commissions on
other trades.
    The settlement was reached after more than a year and a half of
negotiations, Weiss said.
    "We have always been of the mind that the primary target in this case is
the underwriting community," Weiss said. "This gives us a huge booster
shot in our case against them."
    "This is by far the most complex securities litigation that has ever been
brought, and the settlement process is equally complex," said Jack
Auspitz, a lawyer with Morrison & Forester, who represents 30 to 40 of the
Internet companies.
    Gandolfo V. DiBlasi, a lawyer for the underwriters, was not immediately
available to comment.
    The Securities and Exchange Commission and the National Association of
Securities Dealers conducted an extensive investigation of Wall Street's
dealings in IPOs. Regulators have recommended strict limits on several
questionable practices popular during the tech boom, including laddering.
    Earlier this year, 10 of the biggest investment banks agreed to change
their research and IPO practices in a $1.4 billion settlement reached with

Copyright 2003 AP

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