Other actions have been filed making similar allegations regarding the IPOs of more than 300 other companies. All of these have been coordinated for pretrial purposes as In re Initial Public Offering Securities Litigation, Civil Action No. 21-MC-92.
The original lawsuit asserts claims under Section 12 of the Securities Act of 1933 and Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated by the SEC thereunder and seeks to recover damages. The complaint alleges that Juniper Networks and certain of its officers at the time of its IPO violated the federal securities laws by issuing and selling Juniper Networks common stock pursuant to Juniper Networks's initial public offering and a secondary offering of Juniper Networks stock without disclosing to investors that several of the underwriters of the Juniper Networks IPO had solicited and received excessive and undisclosed commissions from certain investors. In exchange for the excessive commissions, the complaint alleges, defendants allocated shares of Juniper Networks stock to certain investors at the IPO price of $5.67 per share. (All stock and price data herein reflect both Juniper Networks's 3:1 and 2:1 stock splits for shareholders of record as of December 31, 1999 and May 15, 2000, respectively.) To receive the allocations (i.e., the ability to purchase shares) at$5.67, the defendant IPO 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 Juniper Networks stock rocketed upward (a practice known on Wall Street as "laddering") was intended to (and did) drive Juniper Networks's share price up to artificially high levels. This artificial price inflation, the complaint alleges, enabled both the defendant IPO underwriters and their customers to reap enormous profits by buying Juniper Networks stock at the $5.67 IPO price and then selling it later for a profit at inflated aftermarket prices, which rose as high as $17.67 during its first day of trading. Rather than allowing their customers to keep their profits from the IPO, the complaint alleges, the defendant underwriters of Juniper Networks's IPO 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 also alleges that Juniper Networks and the defendant underwriters of the secondary offering of Juniper Networks stock (certain of the defendant IPO underwriters and Merrill Lynch, Pierce, Fenner & Smith, Incorporated), were able to price the secondary offering at an artificially high $31.67 per share due to the continued effects of the foregoing violations. The complaint further alleges that defendants violated the Securities Act of 1933 because the Prospectuses distributed to investors and the Registration Statements filed with the SEC in order to gain regulatory approval for the Juniper Networks offerings contained material misstatements regarding the commissions that the underwriters would derive from the IPO and failed to disclose the additional commissions and "laddering" scheme discussed above.