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.
According to a Press Release dated November 29, 2001, this lawsuit asserts claims under Section 12 and 15 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 GlobeSpan and certain of its officers and directors at the time of its IPO violated the federal securities laws by issuing and selling GlobeSpan common stock pursuant to GlobeSpan's initial public offering and a secondary offering of GlobeSpan stock without disclosing to investors that several of the underwriters of the GlobeSpan IPO had solicited and received excessive and undisclosed commissions from certain
investors.
In exchange for the excessive commissions, the complaint alleges, defendants FleetBoston Robertson Stephens, Inc., Donaldson, Lufkin & Jenrette Securities Corp., SG Cowen Securities Corp., Thomas Weisel Partners LLC, Morgan Stanley Dean Witter & Co., E*Trade Group, Inc., DLJdirect, Inc., Lehman Brothers, Inc., and Merrill Lynch, Pierce, Fenner & Smith, Inc., underwriters of GlobeSpan's IPO, allocated shares of GlobeSpan stock to certain investors at the IPO price of $5.00 per share. To receive the allocations (i.e., the ability to purchase shares) at $5.00, 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 GlobeSpan stock rocketed upward (a practice known on Wall Street as "laddering") was intended to (and did) drive GlobeSpan'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 GlobeSpan stock at the $5.00 IPO price and then selling it later for a profit at inflated aftermarket prices, which rose as high as $14.38 during its first day of trading.
The complaint also alleges that rather than allowing their customers to keep their profits from the IPO, the complaint alleges, the defendant underwriters of GlobeSpan'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 GlobeSpan and Prudential Securities Incorporated, UBS Warburg LLC and Jefferies & Company, underwriters of the secondary offering of GlobeSpan stock, were able to price the secondary offering at an artificially high $100.00 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 GlobeSpan offerings contained material misstatements regarding the commissions that the underwriters would derive from the IPO and failed to disclose the additional commissions.
