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| 2001 News and Press Releases |
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HEADLINE ARCHIVED:
Deals & Deal Makers: Latest IPO Boom: Number Of Suits Alleging Abuses By Underwriters
By: Cassell Bryan-Low
The Wall Street Journal. Thursday, November 29, 2001
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Excerpt: During the IPO boom, investment bankers reigned. Amid the IPO bust, it is the lawyers' turn. The past month has seen a torrent of class-action lawsuits filed alleging abuses in the allocation of initial public offerings of stock. This year, more than 1,000 suits have been filed on behalf of shareholders in 263 companies that went public during the heyday of high-technology IPOs, according to court documents released yesterday. Of those, cases related to 102 IPOs have been filed since Oct. 17, according to a database of cases filed tracked by Stanford Law School, of Palo Alto, Calif. Losses alleged in the suits amounted to between $10 billion and $50 billion, says James Newman, executive director of Securities Class Action Services LLC, a New York research organization, while securities-fraud cases tend to settle for an amount of between 7% to 12% of total losses, meaning that settlements could cost Wall Street firms and issuing companies a total of "between $1 billion to $5 billion for all of these cases." The allegations generally track regulatory probes into whether brokerage houses broker securities laws by manipulating stock prices by requiring customers who received shares in an IPO to place so-called aftermarket orders for additional shares at higher prices, a practice known as "laddering." Regulators also are examining whether brokerage houses received inflated commissions from investors in exchange for IPO shares, and whether that amounted to kickbacks that violated federal securities law. Some suits allege antitrust violations from the same circumstances. The recent barrage of suits is prompted by a looming deadline, says Joseph Grundfest, a former commissioner at the Securities and Exchange Commission and now a professor at Stanford Law School. Securities lawyers typically have one year in which to a file a complaint from the time when the fraud was revealed -- in this case, widely believed to be Dec. 6, 2000, when The Wall Street Journal disclosed the practice of laddering. Lawyers anticipate the final tally could reach cases related to as many as 300 IPOs.
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