According to the Company’s FORM 10-K for the year ended December 31, 2004, in June 2003, the Company joined in a tentative global settlement that would, among other things, result in the dismissal with prejudice of all claims against all issuers and their officers and directors in the IPO-related lawsuits, and the assignment to plaintiffs of certain potential claims that the issuers may have against their IPO underwriters. The tentative settlement provides that, in the event that the plaintiffs ultimately recover less than $1 billion in settlement or judgment against the underwriter defendants in the IPO-related lawsuits, the plaintiffs would be entitled to payment by each participating Issuer’s insurer of a pro rata share of any shortfall in the plaintiffs’ guaranteed recovery. The tentative settlement does not involve any payment or admission of wrongdoing by the Company. In July 2003, pursuant to the authorization of a special litigation committee of the Company ‘s Board of Directors, the Company entered into a non-binding memorandum of understanding reflecting the settlement terms described above. In September 2003, in connection with the possible settlement, the Company’s officers and directors who had entered tolling agreements with plaintiffs agreed to extend those agreements so that they would not expire prior to any settlement being finalized. In June 2004, Blue Martini executed a final settlement agreement with the plaintiffs. On February 15, 2005, the Court issued a decision certifying a class action for settlement purposes and granting preliminary approval of the settlement, subject to modification of one aspect of the settlement. The settlement remains subject to a number of procedural conditions, as well as final approval by the court.
As summarized by the same SEC filing, beginning in July 2001, Blue Martini, certain of the Company’s former officers and directors and Goldman Sachs and the other underwriters of the Company’s initial public offering, or IPO, were named as defendants in several class action shareholder complaints filed in the United States District Court for the Southern District of New York, consolidated under the title In re Blue Martini Initial Public Offering Securities Litigation. Similar complaints were filed in the same Court against hundreds of other public companies that conducted IPOs of their common stock since the mid-1990s. On August 8, 2001, all IPO-related lawsuits were consolidated for pretrial purposes before United States Judge Shira Scheindlin of the Southern District of New York. In accordance with Judge Scheindlin’s orders, the Company did not answer the complaint, and no discovery was served. Also in accordance with Judge Scheindlin’s orders, plaintiffs filed amended consolidated complaints on April 19, 2002. The Company joined in a global motion to dismiss the IPO Lawsuits on July 15, 2002. On or about October 9, 2002, the Company’s directors and officers were dismissed without prejudice pursuant to a stipulated dismissal and tolling agreement between the plaintiffs and certain individual defendants. On November 1, 2002 Judge Scheindlin presided over an all-day hearing on the global motions to dismiss. On February 19, 2003, Judge Scheindlin issued a ruling on the global motion to dismiss; with respect to the Company, the motion was granted in part and denied in part.
The complaint alleges that defendants Blue Martini and certain individuals violated the federal securities laws by issuing and selling Blue Martini common stock pursuant to the July 24, 2000 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.
More specifically, the complaint alleges that, in exchange for the excessive commissions, members of the underwriting group Goldman Sachs & Co., Dain Rauscher Incorporated, Thomas Weisel Partners LLC and U.S. Bancorp Piper Jaffray Inc. allocated Blue Martini shares to customers at the IPO price of $20.00 per share. To receive the allocations (i.e., the ability to purchase shares) at $20.00, 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 Blue Martini stock rocketed upward (a practice known on Wall Street as ``laddering'') was intended to (and did) drive Blue Martini'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 $20.00 IPO price and then selling it later for a profit at inflated aftermarket prices, which rose as high as $57 3/8 on its first day of trading, and which subsequently, on August 9, 2000, rose to a peak of $77 5/8.
The complaint further alleges that rather than the underwriters allowing their customers to keep their profits from the IPO, they required their customers to ``kick back'' some of their profits in the form of secret commissions. These secret commission payments were sometimes calculated after the fact based on how much profit each investor had made from his or her IPO stock allocation.
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 Blue Martini offering contained material misstatements regarding the commissions that the underwriters would derive from the IPO transaction and failed to disclose the additional commissions and ``laddering'' scheme discussed above.