6/28/01 Seattle Times - Suit alleges drugstore.com stock offering was rigged
Bellevue e-tailer drugstore.com was sued yesterday by a high-profile securities law firm, which alleged the company's 1999 initial public stock offering was, in effect, rigged.
The suit claims the three brokerages that managed the offering cut secret deals with big investors. In return for getting blocks of shares at the IPO price of $18, the suit claims, the investors agreed to buy more shares at higher, post-IPO prices - a practice known as "laddering" - to artificially boost the stock's price.
When the investors sold shares, the suit alleges, they split their profits with the underwriting brokerages.
The suit, which seeks class-action status, claims the defendants misled investors by not disclosing the laddering arrangement in drugstore.com's prospectus. It was filed in federal court in New York on behalf of drugstore.com shareholders.
Claims that brokerages manipulated stock offerings during the recent IPO craze have shaken Wall Street. Several firms are being investigated by the U.S. Securities and Exchange Commission, the Justice Department and the National Association of Securities Dealers. ...
Besides drugstore.com and its chairman, Peter Neupert, the suit names five of the company's directors: Jeff Bezos, chairman and chief executive of Amazon.com; Starbucks Chairman Howard Schultz; William Savoy, president of Paul Allen's investment company, Vulcan Northwest; and Brook Byers and John Doerr, both of the Silicon Valley venture-capital firm Kleiner Perkins Caulfield & Byers.
The three brokerages - Morgan Stanley; Donaldson, Lufkin & Jenrette; and Thomas Weisel Partners - were not named as defendants.
Amazon and Kleiner Perkins are two of the biggest owners of drugstore.com stock; Kleiner Perkins helped finance the company in its early days. Vulcan and Schultz also own sizable stakes.
Jenny Bendel, a spokeswoman for drugstore.com, said she hadn't seen the suit and couldn't comment. Spokesmen for Amazon and Vulcan also declined comment.
Drugstore.com went public July 28, 1999, selling 5 million shares for $18 apiece; the shares nearly tripled their first day of trading and hit an all-time high of $67.50 in August of that year.
Since then, it's been mostly downhill for the stock. It closed at $1.10 yesterday, off 2 cents.
seattletimes.nwsource.com |
