Goldman, Salomon lose bid to dismiss IPO suits
By Jake Keaveny and Gail Appleson
NEW YORK, Feb 19 (Reuters) - A Federal judge rejected efforts by Citigroup's Salomon Smith Barney, Goldman Sachs Group and 53 other investment banks to throw out a securities lawsuit that alleges they rigged hundreds of IPOs.
Judge Shira Scheindlin of the Southern District of New York denied the majority of the motions to dismiss filed by 55 banks who underwrote the initial public offerings, and the 309 companies that issued them.
The decision, five months after the motions were filed, removed a key hurdle in one of the largest securities lawsuits on record. The lead plaintiffs' attorney expressed hope damages could run into billions of dollars, and legal experts said the banks and companies would now face more pressure to settle ahead of a trial.
"At this point the investment banks have to think seriously about settling," said Adam Pritchard, a securities law professor at the University of Michigan. "If they lose (at trial) damages could be in the billions.
Judge Scheindlin's 238-page ruling said the case can now move into the discovery process, in which each side seeks access to internal bank documents and e-mails that might bolster its case at trial, and deposes bank and company executives.
Investors in the suit allege there was industrywide misconduct to artificially boost demand and inflate the price of IPO shares.
The complaints include: that analysts manipulated the market with optimistic research; that banks ramped up trading commissions in exchange for access to IPO shares; and that investors allocated IPOs were required to buy shares in the after-market in a practice known as "tie-ins."
Defendants had complained that the complaints were made in a blanket-like fashion. They said the charges failed to meet heightened standards for securities fraud cases.
Scheindlin ruled that so-called pleading standards were met in all fraud allegations against the investment banks and against 185 of the companies. The majority of pleadings were also approved in strict liability claims, like alleged misrepresentations in IPO registration statements.
"In sum, Plaintiffs have pled a coherent scheme by Underwriters, Issuers, and their officers to defraud the investing public," said Scheindlin. "These lawsuits may proceed."
Spokespersons at Salomon Smith Barney, Goldman Sachs and Credit Suisse First Boston had no comment on the ruling.
Melvyn Weiss, a partner in plaintiff's firm Milberg Weiss Bershad Hynes & Lerach and chairman of the plaintiffs executive committee, said plaintiffs hope the damages run into the billions of dollars.
There have been no organized settlement talks yet with the underwriting banks, said Weiss in a conference call. However, he said Scheindlin's ruling opened the doors to future talks as defendants seek to curtail the costs of litigation.
"To the extent that some of the defendants have insurance policies, those policies are being eaten up by the costs of litigation," said Weiss.
Weiss also said that defendant Credit Suisse First Boston CSGZn.VX could end up paying for the destruction of 75 electronic files that may have been relevant to the case.
Last week Credit Suisse's outside counsel Robert McCaw of Wilmer, Cutler & Pickering told Judge Scheindlin that the erasure was an error. If it is determined that the documents were purposely destroyed, then the court will interpret all evidence related to them in the plaintiffs favor, he said.
Issuing companies have been in mediation talks with plaintiffs since early last year. Former New Jersey Federal Judge Nicholas Politan is presiding over the talks. The underwriting banks opting against entering into mediation.
The number of individual cases involved and breadth of litigants means that the case could take years to go to trial.Other investment banks involved also include Merrill Lynch & Co., and Morgan Stanley.
(Additional reporting by Per Jebsen)
02/19/03 17:31 ET |
