In December 2006, the appellate court overturned the certification of classes in the six test cases that were selected by the underwriter defendants and plaintiffs in the coordinated proceedings. Because class certification was a condition of the settlement, it was unlikely that the settlement would receive final Court approval. On June 25, 2007, the Court entered an order terminating the proposed settlement based upon a stipulation among the parties to the settlement. Plaintiffs have filed an amended complaint and filed a motion for class certification based on their amended allegations. It is uncertain whether there will be any revised or future settlement.
According to the Company’s FORM 10-Q for the quarterly period ended June 30, 2001, between April and June 2001, eight purported class action lawsuits were
filed in the United States District Court, Southern District of New York against
certain of Autoweb's current and former directors and officers and underwriters
involved in Autoweb's initial public offering. The foregoing actions purport to
allege violations of the Securities Act of 1933 and the Securities Exchange Act
of 1934. The enumerated complaints have only recently been filed. Two motions
seeking lead counsel status were filed on June 19, 2001. Autoweb anticipates
that all actions, except for possibly one separate lawsuit, will ultimately be
consolidated into one action and that a consolidated complaint will be filed
after appointment of lead plaintiff(s). All of the cases have been assigned to
one judge in the Southern District of New York. As of July 13, 2001 Autoweb and
the other defendants had not yet answered any of the complaints listed above,
and discovery had not yet commenced. Autoweb believes that it has meritorious
defenses to the complaints and intends to vigorously defend the actions. In
addition, Autoweb believes that its underwriters may have an obligation to
indemnify Autoweb against these claims under the terms of the underwriter
engagement letter for the initial public offering.
The complaint alleges that defendants violated the federal securities laws by issuing and selling Autoweb.com common stock pursuant to the IPO without disclosing to investors that some of the underwriters in the offering, including the lead underwriters, had solicited and received excessive and undisclosed commissions from certain investors. The complaint alleges that, in exchange for the excessive commissions, lead underwriters Credit Suisse First Boston Corporation and BancBoston Robertson Stephens, Inc., together with underwriters Morgan Stanley Dean Witter & Co., Incorporated and Salomon Smith Barney, Inc. allocated Autoweb.com shares to customers at the IPO price of $14.00 per share. To receive the allocations (i.e., the ability to purchase shares) at $14.00, the underwriters' brokerage customers had to agree to purchase additional shares in the aftermarket at progressively higher prices. The requirement that customers make additional purchases at progressively higher prices as the price of Autoweb.com stock rocketed upward (a practice known on Wall Street as "laddering") was intended to
(and did) drive Autoweb.com's share price up to artificially high levels. This
artificial price inflation, the complaint alleges, enabled both the underwriters
and their customers to reap enormous profits by buying stock at the $14.00 IPO price and then selling it later for a profit at inflated aftermarket prices,
which rose as high as $41.00 during its first day of trading. The complaint further alleges that defendants violated the Securities Act of 1933 because the Prospectus distributed to investors and the Registration Statement filed with the SEC in order to gain regulatory approval for the Autoweb.com offering contained material misstatement regarding the commissions that the underwriters would derive from the IPO transaction and failed to disclose the additional commissions and "laddering" scheme discussed above.