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Technology Stocks : E*TRADE IPO Alert - Y2K and Beyond (EGRP) -- Ignore unavailable to you. Want to Upgrade?

To: Bald Man from Mars who wrote (9660)	7/10/2001 10:43:11 PM
From: Mark Davis	Respond to of 10270

Uhhhhh, The Poorhouse?

To: Bald Man from Mars who wrote (9660)	7/11/2001 8:15:11 AM
From: Patricia Meaney	Read Replies (1) \| Respond to of 10270

Maybe they read this and are staying away: Banks Under Fire For IPO Role Critics charge that investment banks manipulated initial public offerings By Jed Graham Investor's Business Daily What role did investment banks play in the boom and bust of Internet initial public offerings? That depends on whom you ask. Either the banks were part of a vast conspiracy to inflate prices, or they were just innocently building relationships with their customers. Lately it’s the conspiracy theorists that are making the most noise. They says underwriters of IPOs allocated shares to clients that agreed to buy more shares in the aftermarket at predetermined prices. They also say those clients agreed to pay excessive commissions back to the underwriters based on their profits on the IPO shares. IPO underwriting practices are being investigated by the Securities and Exchange Commission, the National Association of Securities Dealers’ regulatory arm and federal prosecutors in New York. And class-action attorneys are racing to file lawsuits against investment bankers and the companies they took public. Lawyers vow to get revenge on behalf of individual investors who lost their shirts after IPOs crashed. Damages could total more than $1 billion, they say. “There could be as many as 400 to 500 issuers that were tainted by this (practice),” said Fred Taylor Isquith, a plaintiffs’ attorney at Wolf Haldenstein Adler Freeman & Herz LLP in New York, which has already filed about 45 class actions. “If that’s so, you’re talking about billions.” Record Year? Lawyers have already filed 154 such lawsuits in 2001 vs. 211 for all of 2000, says the Stanford Securities Class Action Clearinghouse. That puts this year at a record pace. Many suits are seeking “recisionary” damages. “That means the price you paid minus the price you sold it at,” said Saul Roffe, another plaintiffs’ attorney at Sirota & Sirota LLP in New York. “The potential damages are huge.” A look at the dramatic fall of IPOs shows why individual investors and their attorneys are on the warpath. As of April 4, the day after the Nasdaq hit bottom, only 12 of the 323 Internet IPOs in 1999 and 2000 were trading above their offering price, according to data compiled by Jay Ritter, a University of Florida finance professor. Just four of those 323 were still trading above their first-day closing price. But at the height of the IPO frenzy, investment banks and their well-placed customers had more incentive than ever before to share in predictable first-day gains. Underwriter fees of 7% of the stock offering have been pretty static for 20 years, Ritter says. And investment bankers have traditionally priced IPOs low enough to ensure an initial pop — a practice known as “leaving money on the table.” What changed in 1999 and 2000 was how much money banks were leaving on the table, he says. In the 1980s, the typical first-day gain was 7% — about equal to the underwriting fee. For much of the 1990s, the initial gain was about 14%. By the end of the decade, the initial pop of 70% was 10 times the underwriting fee. While the fees didn’t change, Wall Street banks were still in a position to take advantage of those gains. “It made it much more lucrative to be allocated a hot IPO, and buyers — in competing for those IPOs — were willing to pay higher commissions,” Ritter said. The post-mortem for the Internet investing craze continues, and it keeps getting uglier for investment banks. Congress last month held hearings about the conflicts of interest that may have lead financial analysts to recommend bad stocks. Critics say analysts felt pressure to protect their firms’ lucrative investment banking relationships. Then the SEC felt compelled to warn investors not to buy stocks solely on analysts’ ratings. This hasn’t escaped the notice of plaintiffs’ lawyers. In case filings, they charge that the analyst research was part of the manipulation. Of course, investors weren’t burned just by chasing highflying IPOs. Much of the damage came from investing in companies that had already been public for months or longer. Take Commerce One Inc. (CMRC) Shares of the company, which makes software for business-to-business marketplaces on the Internet, fell from as high as 74 on its debut to as low as 26 six weeks later, just above its IPO price. Then the real move began, lifting the stock more than 3,000% in less than five months. But over the next 18 months Commerce One gave up all those gains as Internet hype and its business momentum both faded. Roni Michaely, associate professor of finance at Cornell University’s Johnson Graduate School of Management, says the involvement of the lead underwriter lasts well beyond the first day of trading. “The IPO process is not only the pricing, not only the allocation,” Michaely said. “The underwriter dominates the trading and dominates the order flow and research coverage. So the underwriter has a significant role and ability to impact liquidity well after the IPO.” Heat’s On Tech investment bankers are clearly on the hot seat. Last month, Credit Suisse First Boston — the lead manager of such IPOs as VA Linux Systems Inc. (LNUX) — fired three people from its private equity group that were involved in tech IPOs. And now-defunct Mortgage.com, one of the companies CSFB took public, is suing its former underwriter. But industry watchers aren’t sure how big of a deal all this legal activity will turn out to be for Wall Street. “The question is how explicit were the arrangements” between investment bankers and their clients, Ritter said. In other words, was there a quid pro quo? Tanya Azarchs, an analyst who covers the banking industry for Standard & Poor’s, says many of the rules covering the IPO process are “very gray.” “Exactly where you draw the line and how you squint at it determines whether this crosses the line,” she said. “There may be isolated incidents” where people clearly stepped over the line. “But I don’t have a sense that this is a major thing for the industry.”