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A federal appeals court Tuesday vacated class certification in six key cases in the massive litigation over dot-com era initial public offerings � a potentially devastating setback for plaintiffs in the biggest consolidated securities class action in U.S. history. The decision by a three-judge panel of the Second Circuit U.S. Court of Appeals leaves in doubt whether plaintiffs will ever be able to certify a class against IPO underwriters in the more than 300 cases that make up In Re IPO Securities Litigation. It may also help to unravel a pending $1 billion settlement agreement reached between IPO issuers and the plaintiffs, lawyers involved in the case say. The case, filed in 2001, alleges that 55 underwriters, 310 issuers and hundreds of individual corporate officers conspired to manipulate the market for IPOs of Internet and high-tech stocks during the 1990s. New York U.S. District Judge Shira Scheindlin consolidated thousands of suits into 310 class actions and certified six of them to test arguments about whether the entire docket should move forward. But the Second Circuit said Scheindlin used a lower standard of proof than she should have when certifying the classes. In an opinion by Judge Jon Newman, the circuit said that the case was “bristling with individual questions,” and that plaintiffs hadn’t sufficiently proven that enough common issues existed among potential class members. The circuit remanded the cases back to Scheindlin. Six plaintiffs firms, including Bernstein Leibhard & Lifshitz and embattled class action powerhouse Milberg Weiss Bershad & Schulman, are managing the plaintiff’s case. Milberg serves as lead counsel. Together, the plaintiffs firms are representing more than 7 million shareholders. Fred Taylor Isquith of Wolf Haldenstein Adler Freeman & Herz, one of the six plaintiffs firms, said he believed the case would go on, but that it’s not clear “in what form or shape.” “For better or worse, I wish we had won,” Isquith said. Howard Sirota of New York’s Sirota & Sirota, another of the plaintiffs firms, said, “It’s a disaster � everything is thrown into chaos. The court has said that the individual issues predominate over the common issues, which is fatal to the certification of a class.” If the classes can’t be certified, then the thousands of individual cases would have to be litigated separately, he said. It’s not clear whether that’s feasible.
‘It’s a disaster � everything is thrown into chaos. The court has said that the indi-vidual issues predominate over the com-mon issues, which is fatal to the certifica-tion of a class.’

HOWARD SIROTA plaintiffs’ laywer

The underwriters’ defense is being led by Gandalfo “Vince” DiBlasi, a partner at Sullivan & Cromwell. DiBlasi could not be reached late Tuesday for comment. Dozens of corporate defense firms have lined up for the underwriters in the case. Aside from Sullivan & Cromwell other key players include: Wilmer Cutler Pickering Hale and Dorr; Mayer, Brown, Rowe & Mawe; Kirkland & Ellis; O’Melveny & Myers; Clifford Chance; Gibson, Dunn & Crutcher; Simpson Thacher & Bartlett; Paul, Weiss, Rifkind, Wharton & Garrison; Sidley Austin; Skadden, Arps, Slate, Meagher & Flom; Arnold & Porter; and Proskauer Rose. Issuers also have a heavyweight legal team, led by Jack Auspitz, a Morrison & Foerster partner. In 2005, they received preliminary approval for a settlement that would guarantee the plaintiffs at least $1 billion in recovery from all defendants. The deal had some unique provisions. If the plaintiffs recover less than $1 billion from the underwriters, then the issuers will pay the difference.
Probing the Milberg Weiss ProbeFederal prosecutors have it in for the ailing class action leviathan. Follow our complete coverage of the kickback investigation.

Now that it looks like the underwriters could pay nothing, the issuers may try to get out of the settlement, say lawyers involved in the case. Scheindlin hasn’t given final approval for the settlement, and could nix it based on Tuesday’s decision. The Second Circuit’s decision came on a day when rifts were already developing among members of the plaintiffs committee that’s leading the litigation. Before the decision was handed down, Sirota said he would seek to remove Milberg Weiss as lead counsel. Sirota said the May indictment of Milberg and two of its partners on charges that they paid $11.3 million in kickbacks to serial plaintiffs in securities suits would be a burden on plaintiffs in the IPO case. In Sirota’s view, the indictment has undermined the firm’s ability to credibly represent the shareholders in the IPO litigation. The shareholders allege, among other things, that investment banks demanded kickbacks from institutional investors. “In the criminal trial, [Milberg and its partners] deserve a presumption of innocence,” Sirota said. “But in the civil case, they are an anchor around our necks.” Sirota had asked for a conference with Scheindlin and the members of the plaintiffs committee running the case to argue the need for a change in lead counsel. The move came a day after a committee conference call in which Sirota and Milberg chair Melvyn Weiss vehemently disagreed about settlement negotiation strategy. Weiss, through his assistant, declined to comment. Sirota said he wasn’t sure if he’d pursue removing Milberg in light of the Second Circuit’s decision. However, it was unclear whether Sirota would have received much support from his fellow plaintiffs lawyers. “We have been prosecuting it effectively and efficiently for the last five years,” said Stanley Bernstein of Bernstein Liebhard, who serves as vice chair of the plaintiffs executive committee. “Notwithstanding the problems confronting Milberg Weiss, our clients have not communicated any desire to change the leadership.” Elizabeth Goldberg is a reporter with The American Lawyer, a Recorder affiliate based in New York City.

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