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The most powerful banks on Wall Street joined forces with the best-known names of the Internet industry to urge a federal judge to dismiss 308 class action securities suits against them. Southern District of New York Judge Shira Scheindlin presided over an all-day hearing Friday on whether to dismiss the lawsuits, which claim the banks and their clients rigged initial public offerings during the high-tech boom of the late 1990s. Scheindlin’s decision could prove critical in the high-stakes case, with damages estimated in the billions. Securities class actions rarely go to trial and, barring an outright dismissal, her ruling will inform each party as to the relative strength of its position, a key factor in settlement. The plaintiffs charge that underwriters routinely rigged sought-after IPOs by doling out shares to institutional investors, but only if they agreed to buy more stock later on at a higher price. These secret tie-in agreements artificially inflated the market for the new stocks, drawing in unwitting outside investors, according to the plaintiffs. The fund managers would then cash out, plaintiffs claim, leaving individual investors holding the bag when the stock later fell off its artificial high. The suits also charge that banks manipulated the market by charging investors excessive commissions, pressuring their analysts to promote their clients’ stocks, and handing out shares of hot IPOs to corporate executives in exchange for investment banking business. “These practices are prohibited,” Melvyn I. Weiss, a partner at New York-based Milberg Weiss Bershad Hynes & Lerach, told the court. Weiss heads the plaintiffs’ executive committee. Lawyers for the defendants argued that the plaintiffs failed to meet the heightened pleading standard for stock fraud cases required under federal law. Throughout the hearing, Judge Scheindlin played an extremely active role, peppering both sides with questions and comments and routinely summarizing their arguments for them. She had provided the parties with a list of questions in advance, and she systematically explored each of five separate claims being alleged. As expected, the hearing ended without a ruling, which could easily take months given the complexity of the case. The pleadings alone amount to more than 11,000 pages, although much of it is repetitive. Scheindlin herself jokingly referred to the “1,000-page briefs” filed by the parties. Although it was hard to read which way the judge was leaning, she expressed the most skepticism towards the claims against the issuer defendants, the 308 Internet startups the banks took public. The plaintiffs are alleging that the companies and their corporate officers benefited from the banks’ manipulation of the IPO market. “How does an issuer benefit from a tie-in arrangement or undisclosed commissions?” Judge Scheindlin said. “It seems like the issuer is the one getting screwed here,” she said. “Everyone is making money but the issuer.” The judge seemed more receptive toward the plaintiffs’ claims against the underwriters. “Don’t you have a general duty to disclose everything that an investor would want to know in making a decision to buy a stock?” she asked Gandolfo DiBlasi of New York-based Sullivan & Cromwell and several other lawyers for the defendants. “If you have this arrangement in advance, don’t you have to disclose it?” The judge also repeatedly reminded the lawyers for the underwriters of the tough standard they faced on a motion to dismiss. “Not only must I assume that everything alleged is true, but I must draw every inference as well,” she said. At one point, she said the defendant banks’ position created a “Catch-22″ for the plaintiffs. “If you had to plead everything before you had discovery, why have discovery?” she said. “Just have a complaint and a trial.” Despite not hearing definitively from the court one way or the other, at least one plaintiffs’ lawyer left pleased. “I think we survived,” said Frederick T. Isquith, a partner at New York-based Wolf Haldenstein Adler Freeman & Herz and a member of the plaintiffs’ executive committee.

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