Tentative Settlement Reached in IPO Cases

Byline: Ben White

NEW YORK, June 26 -- Lawyers for investors who sued more than 300 companies over the way the companies handled initial public stock offerings in the late 1990s announced a tentative settlement today that would guarantee investors at least $1 billion.

The settlement, which still must be formally approved by the issuing companies and a federal judge, would end class action suits claiming the companies unfairly structured their IPOs to benefit a small number of insiders at the expense of the general investing public.

The settlement does not cover 55 investment banks and brokerages that helped take the companies public.

The investment banks, and their deep pockets, remain the principal targets of the class action suits, according to Melvin Weiss, chairman of the committee of lawyers representing investors in the suits.

"It's always been the case that the primary target is the underwriters," Weiss said at a news conference here announcing the tentative deal. "This gives us a booster shot in our case against them."

Under the terms of the agreement, formally known as a Memorandum of Understanding, insurance companies for the issuing firms agreed to guarantee at least $1 billion in payments to investors. The issuing companies also agreed to assign certain claims they have against the underwriting firms to the investors.

According to the agreement, if the investors ultimately win $1 billion or more from the underwriting firms, the issuing companies and their insurers would not have to pay a penny. If the investors win more than $5 billion, the issuing companies could have some of the costs they accrued during the litigation reimbursed. If a settlement or judgment against the underwriters amounts to less than $1 billion, the insurance companies would have to make up the difference.

Issuing companies covered by the settlement include a long list of mainly technology firms, such as Razorfish Inc. and AskJeeves, that went public during the stock market boom of the late 1990s.

Lawyers for investors claim that the investment banks taking these firms public engaged in a number of unfair practices such as artificially inflating the price of offerings by requiring recipients of IPO shares to buy more shares on the open market, a practice known as laddering. They also claim the investment banks demanded inflated commissions from recipients of IPO shares and that analysts at the banks misled investors by issuing overly bullish stock research on the companies.

Earlier this year, 10 of Wall Street's largest firms agreed to pay $1.4 billion to settle multiple regulatory probes into allegations of biased stock research. That settlement, however, did not address private class action lawsuits and arbitration claims against the Wall Street firms. None of the firms admitted wrongdoing as part of the settlement. Many investment banks have been putting money aside to cover settlements or legal judgments arising from claims of IPO and research abuses.

Officials at several of Wall Street's largest firms declined to comment on the tentative agreement today. Lawyers at several of the firms are examining the deal to determine if it has any significance for them. All of the firms have denied they engaged in any improper conduct in structuring IPOs.

The $1.4 billion regulatory settlement earmarked about $400 million for return to investors. The tentative settlement announced today would represent the largest amount yet paid out to investors who claim to have been treated unfairly during the market boom.

Weiss, the plaintiffs attorney, said that any investor who bought shares in companies covered by the settlement between 1998 and 2000--and who later lost money on their investment--could be eligible to receive money under the tentative settlement or a subsequent settlement or judgment against the investment banks. Weiss said the list of companies covered would be available at his law firm's Web site, www.milberg.com.

An attorney representing dozens of the issuing companies covered by the settlement said the firms would probably approve the deal in order to put the issue behind them. "Generally firms in commercial litigation like this just want to get on with their lives and focus on their businesses," said the attorney, who asked not be identified by name.

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