Out-Law / Your Daily Need-To-Know

$1 billion settlement for investors over dot.com IPOs

30 Jun 2003, 12:00 am

On Thursday, 309 companies that floated during the dot.com boom years agreed to pay $1 billion to settle a class action lawsuit filed by investors for allegedly inflating their IPOs. But the agreement needs court approval and the companies could avoid paying out if a separate action against their bankers succeeds.

The lawsuits focused on the period between 1998 and 2000, when web site hits seemed to count for more than actual revenues. The companies include Ask Jeeves, Akamai Technologies, Etoys, Global Crossing, Aether Systems, Copper Mountain Networks, VA Linux, Priceline.com and Webvan.

The investors argued that the companies and their Wall Street banks misled them with over-hyped research analysis and rigged the IPOs to artificially inflate share prices, making the banks and the corporate insiders the only winners.

The US law firm Milberg Weiss, which specialises in class actions, represented the investors and stands to make a healthy contingency fee from Thursday's settlement. But it could make even more: it is now suing the 55 investment banks that handled the IPOs and in doing so will be supported by the 309 companies – because that was another condition of their settlement.

If that action succeeds in recovering more than $1 billion from the banks – and it is expected to seek around five times that figure – then the companies avoid the need to pay out. The targets are said to include Goldman Sachs, Morgan Stanley, Credit Suisse First Boston, JP Morgan, Citigroup, Deutsche Bank, Smith Barney and Merrill Lynch.

The deal with 309 companies needs the approval of each company's board of directors and a federal court judge before it ends.

Last April, ten Wall Street firms settled separate charges that they misled investors with biased stock recommendations, brought by New York Attorney General Eliot Spitzer, for $1.4 billion.