Tech Companies to Pay $1B in IPO Case
The Associated Press
Jun 26 2003 1:50PM
NEW YORK (AP) - Hundreds of companies that staged hot initial public offerings during the tech boom will pay $1 billion to investors under a tentative partial settlement announced Thursday, and cooperate in ongoing litigation against 55 brokerage firms accused of funneling huge payoffs to insiders through secret deals.
The massive case involves 309 separate suits filed by investors against 55 investment banks, more than 300 companies that went public between 1998 and 2000, and an unspecified number of their individual corporate officers and directors. The companies involved include Global Crossing, MP3.com, Ask Jeeves Inc. and Red Hat Inc.
The proposed settlement guarantees investors will receive at least $1 billion, to be paid by the tech companies' insurers, said Melvyn I. Weiss, chairman of a committee of attorneys representing the plaintiffs.
Most of the defendants involved have approved the settlement, which also requires court approval, he said.
But no funds will be paid to investors until the case against the investment banks is resolved, he said. If that action yields an award greater than $1 billion, then the companies' obligation will be met.
The plaintiffs say the banks, including J.P. Morgan, Credit Suisse First Boston, Morgan Stanley and Smith Barney, plotted to artificially inflate the value of IPO stocks through a practice called ``laddering,'' in which larger shares are allocated to investors who promise to take bigger stakes after the stock hits the open market.
In addition, some customers were compelled to give extra compensation to the banks that were underwriting the IPOs, sometimes through inflated commissions on other trades. Later, after the so-called ``quiet period'' that follows IPOs expired, analysts who worked for the banks issued favorable research reports to help give the stocks ``booster shots,'' Weiss said.
The memorandum of understanding was reached after more than a year and a half of negotiation between lawyers for the investors, counsel for more than 300 companies and at least 42 primary insurers, Weiss said.
06/26/03 13:44 EDT
AI
