The big news today is the proposed settlement for $1 billion of the more than 300 cases against companies who made initial public offerings of their shares in the high-tech boom years. The cases, known as the “IPO Allocation” cases, were previously consolidated in the S.D.N.Y. Plaintiffs have alleged, as summarized by Reuters, that the issuers and/or their underwriters “manipulated the market with optimistic research; ramped up trading commissions in exchange for access to IPO shares; and that investors allocated IPO shares were required to buy shares in the after-market to help push up the share price.”
The key to the settlement, however, is that the companies and their insurers may never have to pay a dime. Indeed, they may even get to recoup their costs for defending against the litigation to date. A Bloomberg article on the proposed settlement explains that the companies are only liable for the difference between $1 billion and what the plaintiffs are able to collect from the underwriter defendants. In other words, if the plaintiffs recover more than $1 billion from the underwriter defendants, the companies will not have to make any payment. If the plaintiffs recover more than $5 billion from the underwriter defendants, the companies will actually be able to recover various expenses associated with the litigation. In return, the companies appear to have assigned any related claims they may have against the underwriters to the plaintiffs.
The 10b-5 Daily 