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The latest company hit by the recent wave of lawsuits involving last year’s lucrative initial public offerings is Marketwatch.com Inc. Shareholder Laurence Bonilla filed the suit against the struggling media company in U.S. District Court for the Southern District of New York. Law firms Sirota & Sirota LLP and Lovell & Stewart LLP brought the suit on behalf of Bonilla and other shareholders. The suit, seeking class action status, alleges that the company, its executives and its lead underwriter, Salomon Smith Barney Inc., unfairly determined how the IPO shares were allocated. MarketWatch.com went public in January 1999, raising $46.7 million by selling shares at $17 each. The shares now trade in the range of $3 to $4. Like several other lawsuits filed in recent months, the suit against Marketwatch contends that underwriters sold shares to certain investors in return for kickbacks or otherwise unfairly allocated its shares to keep Marketwatch shares artificially inflated. The suit also alleges that the company and its underwriters did not inform investors of the allocation arrangements. Similar lawsuits have been filed against issuers and underwriters in the IPOs of companies such as Red Hat Inc., Ariba Inc., Planet Rx Inc. and VA Linux Systems Inc. Sirota & Sirota and Lovell & Stewart are the law firms involved in several of those cases as well. The U.S. Securities and Exchange Commission and the U.S. Attorney’s office in New York have reportedly started an investigation into IPO allocations. Marketwatch spokesman Dan Silmore said the company declined to comment on the suit. Salomon spokesman Duncan King also declined comment on behalf of the bank. But, Jay Ritter, a professor of finance at the University of Florida who wrote a study about underwriter fees in IPOs, believes many of the IPO allocation lawsuits may run into legal gray areas. “There have certainly been many investors over the years where investors have voluntarily said, ‘I want some shares of the IPO, and if you give me more at the offer price, then I will buy more in the aftermarket,’ and there’s nothing illegal about that,” Ritter said. In addition, it is customary and legal for an investor to agree to buy shares in an unpopular deal in exchange for receiving preferential treatment in an extremely coveted one, Ritter said. Moreover, the investment banks may be in an even better legal position, he added. “There are no regulations, nor should there be regulations, regulating who investment bankers can allocate shares to.” Copyright (c)2001 TDD, LLC. All rights reserved.

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