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Amid much fanfare, Turkcell Iletisim Hizmetleri AS, went public last July, raising $1.7 billion in the largest initial public offering ever seen in Turkey. Just four months later, the class actions against the Turkish mobile phone company and its underwriters began rolling in. The huge float failed to attract many after-market buyers, sending the stock into negative territory almost immediately. The downward drift of Turkcell stock began as the initial public offering market eroded, leaving many investors in new issues dissatisfied. With so many recent IPOs trading below their issue price, it is a “fair generalization” to see an increase in lawsuits against the issuers and their deep-pocket underwriters, said John Coffee, a professor at Columbia Law School. Coffee stressed that plaintiffs’ lawyers are reluctant to take cases unless there are significant drops in the share price over a very short period of time. This would show that the stock was artificially inflated and the new information corrected the error, he said. However, unless IPO investors can prove material omissions or misstatements in the issuer’s Securities and Exchange Commission filings, they are usually unsuccessful. “Underwriters are not responsible for taking the risk out of securities markets,” said Harvey Goldschmid, a professor at Columbia Law School. “The philosophy of the securities laws is that so long as the risks have been fully and fairly disclosed, there’s no basis for legal action,” he said. Misleading statements and lack of disclosure are the allegations at the heart of the lawsuits against Turkcell. In its prospectus, the company claimed it had approximately 6.2 million customers using its mobile-communications network, and that it has 68 percent share of the Turkish mobile-phone market. According to the lawsuits brought by individual investors, the Istanbul, Turkey-based company misled investors by under-representing the rate at which Turkcell was losing cellular-telephone customers. The various complaints contend that when the truth was revealed, Turkcell’s shares trading on the New York Stock Exchange plummeted. “The company didn’t make clear how many customers it was losing,” said attorney John Halebian, who represents one of the plaintiffs. The Turkcell lawsuits also name Goldman Sachs International, Morgan Stanley Dean Witter & Co. and subordinate underwriters as defendants. Lucas van Praag, a Goldman Sachs spokesman, said the suit was without merit and declined to comment further. “We don’t talk about any litigation in which we are involved,” added Judy Hitchen, a spokeswoman for Morgan Stanley. The litigation against Turkcell isn’t unique. Consider the class action against Foundry Networks Inc., a tech company that had a stellar IPO in September 1999. Shortly after the closing bell Dec. 19, 2000, the company issued a profit warning that sent the stock crashing down by 57 percent the next day. The plaintiffs allege the officers of the company misled investors about the financial health of the company, giving the officers time to sell their shares before making the warning. Foundry officials said the suit is without merit. In the case against pcOrder.com Inc. and its controlling shareholder, a different failure-to-disclose theory is being pursued, one that could be a test case for many of the dot-coms that had an IPO and went out of business within the same year. Plaintiffs allege the company misled investors by indicating in the prospectus that they had a formal business plan but later contradicted themselves. Company officials did not return telephone calls seeking comment. Copyright (c)2001 TDD, LLC. All rights reserved.

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