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Now that U.S. District Court Judge Shira Scheindlin in New York will keep her seat presiding over 300-plus federal lawsuits regarding the allocations of shares in hot initial public offerings, one of the many dramas surrounding the cases has come to an end. But other battles are just emerging. Within the next few weeks Scheindlin has to decide whether to allow the plaintiffs — led by partner Mel Weiss of New York’s Milberg Weiss Bershad Hynes & Lerach — access to potentially thousands of confidential IPO-related documents from the defendants, underwriters and issuers. Several of those underwriters asked the judge to remove herself from the case. She declined and was recently backed up by a federal appeals court panel. The request for those confidential documents from the defendants would require the judge to use her discretion under the Private Securities Litigation Reform Act passed by Congress in 1995. Usually, the federal statute forbids discovery before the defendants — which include the underwriters and the issuing companies in these cases — have moved to dismiss the actions, said Larry Soderquist, a Vanderbilt University law professor and partner with Dinsmore & Shohl in Nashville, Tenn. But under that law, “A judge can allow limited discovery if they think it’s warranted — and there’s a great deal of [the judge's own] discretion involved in that,” Soderquist said. Neither the underwriters nor the issuers have filed a motion to dismiss, although the underwriters have said they plan to do just that. Weiss noted that he expects the underwriters to file the motion to dismiss later this month or in May, and even then, the final decision on dismissal will stretch into the fall. But Weiss and his colleagues are hoping to start limited discovery. The basis for his request relies on the fact that several of the investment banks — including Credit Suisse First Boston and possibly Goldman, Sachs & Co. and Merrill Lynch & Co. — have already handed over IPO allocation-related documents to the Securities and Exchange Commission. Weiss noted in court that the plaintiffs do not have requests for specific documents and do not know how many documents, concerning what number of companies or underwriters, have been handed to the government. Such a request, based on a concurrent federal investigation, has never been made before in a securities litigation case involving hundreds of companies, Scheindlin noted in a hearing last week. The SEC has been conducting separate investigations about the same IPO allocation issues. The Commission recently entered into an agreement with Credit Suisse in which the investment bank paid a $100 million fine related to its IPO allocation practices in 1999 and 2000. Now, the underwriter defendants are trying to prevent any discovery process at all. They don’t want “the plaintiffs to get to where they may be able to learn a great many facts that bolster their case,” Soderquist said. In addition, he noted, “Discovery is expensive and time consuming for defendants — it makes settlements more likely and it makes settlements more expensive.” Meanwhile, Weiss and the plaintiffs were in mediation on Wednesday with the issuers and their insurers, discussing a possible settlement. The underwriters were briefed, but are not joining the talks. Observers, though, say it is unlikely that the underwriters would settle in the wake of the unsuccessful recusal motion. One lawyer connected to the cases observed that the underwriters are determined to fight the allegations partly because one issue in the SEC cases had been dropped against CSFB due to lack of evidence. That issue was “laddering,” in which an underwriter allegedly allocates shares of hot IPOs to favored investors on the premise that those investors will buy more shares at higher prices in the aftermarket. Dennis Orr, a partner with Chicago’s Mayer Brown Rowe & Maw, which represents some of the issuers, said the biggest effect of the ruling by the 2nd U.S. Circuit Court of Appeals to keep Scheindlin on the lawsuits is that “the cases will start moving faster, clearly.” Copyright (c)2002 TDD, LLC. All rights reserved.

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