Investors who were burned on initial public offerings (IPO) that Wall Street sold during the stock market bubble will receive at least $1 billion (€875 million) under a proposed legal settlement unveiled yesterday.
The deal is likely to be the largest private recovery for investors who fell prey to Wall Street's misleading and aggressive tactics during the bull market.
It may also mean another large legal bill for Wall Street, which is struggling under heavy liabilities from the market crash and the investigations it spawned.
The settlement calls for 309 companies that issued IPOs in the late 1990s, and their insurers, to pay $1 billion to investors who filed a class-action lawsuit against them.
The companies will not have to pay anything, however, if the investors' lawyers manage to exact at least $1 billion from the 55 investment banks that underwrote the IPOs and are named in the lawsuit. The issuing companies could even receive compensation if the banks end up paying more than $5 billion.
The investors accused the banks of using bogus stock research and other fraudulent tactics to inflate the share prices for telecoms and internet companies they underwrote in 1998-2000. A federal judge rejected the banks' request to dismiss the suit in February.
Securities lawyers said the deal's proposed structure would increase pressure on the banks because it placed the issuing companies in league with the investors. "They are trying to give the issuers a financial stake in the case and motivate them to help against the underwriters," said securities lawyer Mr Howard Schiffman.
Mr Melvyn Weiss, the lead lawyer for the plaintiffs, said: "This is the first $1 billion. We will be seeking substantially more than that." The deal requires court approval. - (Financial Times Service)
