Category Archives: IPO Allocation Cases

It has been a long journey for the IPO allocation cases, but it looks like the end is in sight. The parties have filed a global settlement agreement (issuers and underwriters) with the court. The settlement amount is $586 million, a sharp decline from the amounts being considered prior to the Second Circuit’s decision to deny class certification in some representative cases.

Could this be the final post on the IPO allocation cases (6 years and 17 posts later)? Don’t despair – there’s always the possibility of an attorneys fees dispute. Counsel for the plaintiffs is requesting $195.3 million in fees on top of $56 million in expenses. The WSJ Law Blog and Bloomberg have reports.

The Wall Street Journal reports that there may be a settlement in the IPO allocation cases. Although it is not entirely clear from the press coverage, it appears that the parties are contemplating a global settlement (including issuers and underwriters) for less than $700 million. A settlement at this level would be a significant drop from the amounts being considered prior to the Second Circuit’s decision to deny class certification in some representative cases. Additional coverage can be found in the AmLaw Daily and Bloomberg.

The plaintiffs and the issuer defendants in the IPO allocation cases have obtained preliminary court approval of their $1 billion settlement, originally agreed to back in June 2003. The cases were brought against nearly 300 companies and 55 investment banks involved in initial public offerings during the tech boom. The plaintiffs generally allege that the defendants ramped up trading commissions in exchange for providing access to IPO shares and required investors allocated IPO shares to buy additional shares in the after-market to help push up the share price. The Washington Post has an article on the court’s decision.

Quote of note (Washington Post): “‘Despite the apparent magnitude of the billion-dollar guarantee, this settlement is not solely — or even primarily — about monetary recovery,’ Scheindlin said. The judge said the real value is in the companies’ agreement to aid the investors’ suits against the banks. The start-ups also agreed to allow investors to file suits to pursue the companies’ claims that the banks didn’t raise enough money in the IPOs. ‘The value of each of these benefits should not be understated,’ Scheindlin wrote. The Internet companies ‘know far better than the plaintiff classes precisely what occurred in the period leading up to and including their IPOs.'”

Reuters reports that the S.D.N.Y. court presiding over the IPO allocation cases has granted class certification in six “focus” cases that have been used to test the sufficiency of the overall allegations. The plaintiffs have sued underwriters in connection with over 300 initial public offerings. The cases generally allege that the defendants ramped up trading commissions in exchange for providing access to IPO shares and required investors allocated IPO shares to buy additional shares in the after-market to help push up the share price.

Quote of note: “U.S. District Judge Shira Scheindlin said that if she had rejected the class action request, the companies ‘would have essentially defeated the claims without ever having been compelled to defend the suits on the merits. In their zeal to defeat the motion for class certification, defendants have launched such a broad attack that accepting their arguments would sound the death knell of securities class actions.'”

Will the IPO allocation cases be granted class certification? It seems likely, but the S.D.N.Y. has asked the plaintiffs to provide the court with more information before it will let them proceed against the 55 investment banks named in the suits.

According to a Reuters report, Judge Scheindlin issued an order on Monday giving the plaintiffs two weeks to “redefine the class and convince the court that the definition is adequate.” Moreover, one of the plaintiffs’ primary claims is that the investment banks engaged in “laddering,” a practice in which the banks allegedly handed out IPO shares to buyers who promised to buy more shares at higher prices once the stocks began trading publicly. The alleged goal was to put additional upward pressure on the stock prices. As to these claims, the court stated that the plaintiffs “should report within three weeks on how an expert would measure what effect, if any, was exerted on stock prices” by the alleged laddering.

Quote of note: “In her order, Judge Scheindlin said the court record on whether to grant class status is insufficient in two ways and set tight deadlines for plaintiffs to fill in the gaps. ‘Plaintiffs’ failure to adequately respond to either aspect of this order may result in denial of the pending motions’ seeking class certification, the order said.”