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A shareholder of Ariba Inc. common stock has filed a class action lawsuit against the company, its broker Morgan Stanley & Co. and two of Ariba’s senior managers, alleging the defendants violated federal securities laws. Shareholder Glenn Luksik hired the New York law firms of Milberg Weiss Bershad Hynes & Lerach and Seeger Weiss to file the suit, which alleges that Ariba’s initial public offering and prospectus filed with the Securities and Exchange Commission in June 1999 offered false information and omissions important to investors of the Mountain View, Calif., company. The suit, filed in the U.S. District Court for the Southern District of New York, accuses Morgan Stanley, a co-manager of Ariba’s IPO, of giving certain big-time investors material portions of restricted shares in exchange for excessive and undisclosed commissions. “Unbeknownst to investors … Morgan Stanley agreed to allocate Ariba shares to its customers in the offering in exchange for which the customers agreed to purchase additional Ariba shares in the aftermarket at predetermined prices,” the suit alleges. “Such tie-in arrangements … did maintain, distort and/or inflate the market prices for Ariba shares in the aftermarket and were thus an undisclosed benefit to Morgan Stanley with respect to … a method of locking in additional commissions.” By accepting kickbacks by offering sought-after shares, Morgan Stanley distorted the market for Ariba’s stock and offered the securities to the public “at prices in excess of the public offering price of the securities,” the suit maintains. It also blames Ariba for allegedly allowing this to occur and specifically targets Keith Krach, the company’s president, CEO and chairman and Chief Financial Officer Edward Kinsey, who signed the IPO documents. Krach and Kinsey “controlled the public dissemination of false and misleading information in the prospectus,” the suit reported. The suit also lists other co-managers to Ariba’s IPO, including Deutsch Bank Securities Inc., Merrill Lynch & Co., Pierce, Fenner & Smith Inc., and Dain Rauscher Wessels, a division of Dain Rauscher Inc. The legal action was filed on behalf of all shareholders who bought stock based on the company’s IPO, including those who have already sold their shares. Ariba, a business-to-business network service provider, did not return phone calls late Tuesday afternoon. Ariba filed its IPO almost two years ago, offering 5 million shares of its common stock at $23 per share. After underwriting discounts and commissions, which were to total more than $8 million, Ariba planned to garner almost $107 million from the offering. Under terms of the IPO, Ariba also granted the underwriters the right to buy an additional 750,000 shares of common stock to cover over-allotments. Ariba also agreed to sell about 1.8 million shares to Morgan Stanley and 806,500 shares to each of the other three co-managers. Ariba completed its IPO on June 28, 1999, selling 5.75 million shares and earning $121.1 million cash, net of underwriting discounts and commissions. On the first day of trading, the stock skyrocketed to $90 per share. The suit alleges that the increase in share price was due, in part, to the tie-in agreements between Morgan Stanley and certain investors, “which locked in demand for Ariba shares in the after-market at levels well above the offering price, thereby unlawfully and deceptively manipulating the market in Ariba shares.” Morgan Stanley is just one brokerage firm that has come under investigation recently for received alleged kickbacks for shares of stock in “Hot IPOs,” according to the suit. Other companies under fire include Goldman, Sachs & Co., Bear, Stearns & Co. Inc. and Credit Suisse First Boston Corp. The suit against Ariba also mirrors a similar class action complaint filed recently by Milberg Weiss and Seeger Weiss against VA Linux Systems, Inc., Credit Suisse and other individuals involved. Copyright (c)2001 TDD, LLC. All rights reserved.

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