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Civil lawsuits against companies that staged initial public offerings and their underwriters have swelled the total number of securities-related class actions by 23 percent this year, according to a new study from PricewaterhouseCoopers. Of the 263 class actions filed this year, 53 percent, or 140, are IPO-related, the study noted. The figures are all the more stunning because when the so-called IPO allocation lawsuits were subtracted, the percentage of securities cases filed so far this year actually plunged by 38 percent compared with all of last year. Only 123 securities class actions that were unrelated to IPOs were filed in federal courts this year. Last year 201 cases were filed. And the numbers for 2000, in turn, were a dip from 1999′s count of 207, indicating that shareholder lawsuits, on the whole, are on the decline. Jay Ritter, a finance professor at the University of Florida, said the IPO lawsuits are not entirely new, but do have a new emphasis, especially in the charge of “laddering.” That refers to the practice of requiring investors to buy more expensive shares in the aftermarket as a condition of receiving shares in the IPOs. “That type of practice has occurred with penny stock underwriters, but in general it has not been a focus of allegations against prestigious underwriters until recently,” Ritter said. In many of the IPO allocation lawsuits, shareholders allege that underwriters for hot IPOs took kickbacks or increased commissions from favored investors in return for allocating shares of popular IPOs. Still, Ritter said, when it comes to the laddering cases, “I think plaintiffs have an uphill battle. I don’t think that requiring investors to buy additional shares was a widespread practice that had a big impact on stock prices.” Although the laddering charges are included in almost all of the IPO cases, Ritter noted that it is hard to tell whether the weakness of the laddering charges will affect the cases as a whole. Nevertheless, at least one investment bank facing such lawsuits has started a defensive maneuver. Credit Suisse First Boston has brought on a new general counsel, Gary Lynch, who is expected to join the investment bank Oct. 1. Lynch could be instrumental in helping CSFB dig out of an increasingly serious mire. The investment bank is not only named as a defendant in some civil suits, but is also reportedly under investigation by the U.S. Attorney’s Office in the Southern District of New York, the U.S. Securities and Exchange Commission and the National Association of Securities Dealers. CSFB has already fired three brokers related to IPO allocations and brought in a new chief executive officer, John Mack. Lynch’s appointment is widely considered to be first tremor in Mack’s expected shakeup. Lynch’s biggest credential is his tenure as director of enforcement for the SEC between 1985 and 1989, when he helped put Ivan Boesky and Michael Milken out of business. Lynch, most recently a partner with New York-based law firm Davis Polk & Wardwell, helped the now-defunct Kidder Peabody & Co. in its case against one of its own traders, Joseph Jett, on allegations of fraud. Lynch’s new job, coupled with the PricewaterhouseCoopers study, makes clear that old-economy companies are just as vulnerable to these allegations as their high-tech counterparts. The report noted that in 2000 alone, four companies were sued among the 30 that make up the Dow Jones Industrial Average. In the previous six years, in contrast, only five of the DJIA companies were sued. “It is now clear that any and every publicly traded company can be the target of a shareholder class action,” PricewaterhouseCoopers wrote. Copyright (c)2001 TDD, LLC. All rights reserved.

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