Court Rejects I.P.O. Class Action Against Banks

That sound emanating from lower Manhattan on Tuesday was a communal sigh of relief from the major Wall Street banks. These firms scored a huge victory when a federal appeals court ruled that they will not have to face a huge securities class-action suit related to accusations that they manipulated the prices of initial public offerings of technology companies during the market boom of the late 1990s. If they had chosen to avoid a trial, the banks faced the prospect of paying billions of dollars to settle the suit, which involved 55 underwriters, including Merrill Lynch, Goldman Sachs, Morgan Stanley and Credit Suisse First Boston. A link to the full text of the ruling is below.
There was more good news for the banks in Tuesday’s ruling. The decision raises the prospects that earlier settlements in the case, in particular a $425 million agreement with J.P. Morgan Chase and a $1 billion guaranteed proposed deal with the issuers of the new shares that was still pending approval by the judge in the case, could be nullified.
Described by many as the largest consolidated securities class-action case ever, the I.P.O. lawsuit involved more than 300 individual investors and 309 issuers.
The ruling was a devastating blow to the embattled securities class-action powerhouse Milberg Weiss Bershad & Schulman, which is a co-leader for the plaintiffs. The firm has been operating under a cloud for months after it was indicted by a federal grand jury in Los Angeles in May. The firm and two of its named partners are accused of making $11.3 million in secret payments to entice people to serve as plaintiffs in more than 150 lawsuits.
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