Morgan Chase settles IPO suit

$425 million deal is first in huge case involving top banks

April 21, 2006|By NEW YORK TIMES NEWS SERVICE

NEW YORK -- JPMorgan Chase & Co. said yesterday that it would pay $425 million to settle its part of a class action lawsuit that contends that dozens of banks cheated investors out of hundreds of millions of dollars from initial public offerings during the 1990s market boom.

JPMorgan Chase is the first to settle of the 55 investment banks named as defendants, and its agreement may prompt other Wall Street firms to follow.

The agreement needs the approval of two federal judges.

Morgan Stanley, Credit Suisse, Lehman Brothers, Citigroup and Goldman Sachs are among largest investment houses involved in the case. Officials at those firms declined to comment yesterday.

The lawsuit contends that during the technology bubble, the banks awarded shares of hot initial offerings to favored clients in return for lucrative investment banking. It also contends the banks made deals with investors so that they would buy shares in the aftermarket to drive up prices artificially and created misleading research to lure investors into buying.

But with only a small fraction of the overall damages at stake, JPMorgan Chase's eagerness to settle early on may reflect the lessons learned last year from paying $2 billion, the most of any bank, as the last to resolve a class action stemming from the collapse of WorldCom.

"It's probably safe to say JPMorgan learned a lesson from the WorldCom settlement which encouraged them to settle the IPO litigation early on," said Robert G. Heim, a former enforcement lawyer for the Securities and Exchange Commission who now works at Meyers & Heim.

The size and timing of yesterday's announcement seemed to catch some securities lawyers and other big banks by surprise, and it could set the stage for a multibillion total settlement.

"This will definitely put pressure on the remaining defendants to settle the litigation," Heim said.

"When the first settlement reached is so large, it sets the bar very high for future settlement," he said.

Joseph Evangelisti, a JPMorgan Chase spokesman, said the bank had reached "an agreement in principle" but that it continued to deny the lawsuit's allegations.

Evangelisti added that there would also be no impact on future financial results because of adequate legal reserves.

The announcement was made after the stock market closed. Earlier, shares of JPMorgan Chase slipped 2 cents to $42.60.

The deal is a badly needed victory for the New York law firm of Milberg Weiss Bershad & Schulman, which led a group of plaintiffs' lawyers. The firm and several partners have been the targets of a federal criminal investigation into allegations that illegal tactics were used in shareholder lawsuits.

In 2001, Melvyn I. Weiss and other plaintiffs' lawyers originally sued, on behalf of hundreds of investors, the 55 banks as well as nearly 300 companies for practices related to the boom in initial offerings; another group of lawyers filed hundreds of similar complaints on antitrust charges.

Asked about possible settlements with the other banks, Weiss said, "We are not close."

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