The Associated Press reports that District Judge Pauley of the S.D.N.Y. has dismissed two class actions alleging price-fixing in connection with high-tech initial public offerings. The anti-trust cases, brought in 2001 against ten investment banks, addressed the same claims of stock price manipulation and commission kickbacks as in the related IPO allocation cases. The article states "Pauley ruled Monday that the charges made by investors in the suits are immune from antitrust law and fall to federal securities regulators to decide."
Addition: Judge Pauley's decision can be found here.
Securities Litigation Watch has a post on a decision by Judge Scheindlin of the S.D.N.Y. to reduce the proposed attorneys' fees in the Independent Energy Holdings case from 25% to 20% of the recovery. The court evidently "suggested that the contingency risk asserted by plaintiffs' counsel as part of the justification for fees is 'often inflated.'"
It is difficult to figure out the best methodology for measuring contingency risk. Judge Scheindlin appears to have cited overall settlement rates for securities class actions, but that statistic does not provide much information about the contingency risk faced by a plaintiffs' firm in the particular case before the court. (Securities Litigation Watch also notes that the overall settlement rates used in the decision appear to be out-of-date.)
In any event, Judge Scheindlin's willingness to reduce the requested attorneys' fees in a securities class action settlement may be a source of concern for the plaintiffs' bar. The judge presides over the IPO allocation cases, where the investors are already guaranteed a recovery of at least $1 billion. (See this post in The 10b-5 Daily.)
The Associated Press has a lengthy interview with Mel Weiss of Milberg Weiss, the leading plaintiffs' securities class action firm.
Quote of note:
Interviewer - "How big was the $1 billion settlement for ordinary investors in the IPO fraud case in your view? How much do you hope to get from the brokerages?"
Weiss - "The billion dollars is an expression of concern that these allegations are real and could give rise to staggering liability. It simplifies the litigation in that we can focus our attention on the conduct of the investment banks. The interesting part here is how much broader our inquiries will be than the government's has been because we're covering 55 banks, not 10. It's going to be far more fascinating to demonstrate that the conduct we allege to be serious violations of the law was widespread throughout the entire industry. ... I would be very disappointed if we don't achieve multiple billions (in recovery)."
The San Jose Mercury News ran a story yesterday on the proposed settlement by the issuer defendants in the IPO allocation cases. The author states that investors should not expect a quick or large recovery. The 10b-5 Daily has an earlier post on the settlement terms.
Quote of note: "Like many average IPO investors, Gallagher is hazy on exactly what iBeam or its investment bank was alleged to have done wrong. But he feels he deserves a cut of the settlement anyway. 'I feel I deserve it because, well, I'm not certain why,' Gallagher said sheepishly. 'Nobody talked me into it, that's for sure. The opportunity was there, and I decided to go for it.'"
The big news today is the proposed settlement for $1 billion of the more than 300 cases against companies who made initial public offerings of their shares in the high-tech boom years. The cases, known as the "IPO Allocation" cases, were previously consolidated in the S.D.N.Y. Plaintiffs have alleged, as summarized by Reuters, that the issuers and/or their underwriters "manipulated the market with optimistic research; ramped up trading commissions in exchange for access to IPO shares; and that investors allocated IPO shares were required to buy shares in the after-market to help push up the share price."
The key to the settlement, however, is that the companies and their insurers may never have to pay a dime. Indeed, they may even get to recoup their costs for defending against the litigation to date. A Bloomberg article on the proposed settlement explains that the companies are only liable for the difference between $1 billion and what the plaintiffs are able to collect from the underwriter defendants. In other words, if the plaintiffs recover more than $1 billion from the underwriter defendants, the companies will not have to make any payment. If the plaintiffs recover more than $5 billion from the underwriter defendants, the companies will actually be able to recover various expenses associated with the litigation. In return, the companies appear to have assigned any related claims they may have against the underwriters to the plaintiffs.
An article in today's Wall Street Journal (subscription required), reports that Judge Scheindlin (S.D.N.Y.) has ordered UBS Warburg, despite the brokerage firm's concern about excessive cost, to pay for the retrieval of certain e-mails relating to an employment discrimination case. The authors speculate that the ruling will be cited in future investor class action suits to justify requiring Wall Street firms to pay for extensive e-mail discovery. Although the article specifically mentions the IPO allocation cases, it inexplicably fails to note that these cases are, in fact, before Judge Scheindlin.
Quote of note: "The judge set out a new standard for determining when a defendant must produce e-mails that includes such factors as 'the importance of the issue at stake in the litigation' and how much the retrieval will cost 'compared to the amount in controversy.'"