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A tentative outline for trying test cases in the litigation over the manipulation of initial public offerings during the Internet boom was agreed to on Friday. Judge Shira Scheindlin of the Southern District of New York told lawyers for 55 securities firms and investors to have 10 to 20 “focus cases” selected by Jan. 5. Investors filed the suits claiming injury from Wall Street conflicts of interest and the so-called laddering of initial offerings. The focus cases will be briefed and argued as a precursor to a possible settlement of sweeping allegations concerning initial public stock offerings for 309 companies between January 1998 and December 2000. Investors allege that the firms committed securities fraud in the offerings, in part by having pre-arranged deals with valued customers to buy the new stock at increasingly higher prices, or to purchase other issues with the same understanding, practices known as “laddering.” “We’ll be picking 10 or 20 cases that are going to be representative of defendants’ conduct,” said plaintiffs’ liaison counsel Melvyn Weiss, of Milberg, Weiss, Bershad, Hynes & Lerach. “The objective of everybody is to try to make these cases understandable, so we can go to the clients and give them an idea of what’s involved and what the exposure is.” The 309 issuers, mostly technology companies, reached a settlement in June with Weiss and co-liaison counsel Stanley Bernstein of Bernstein Liebhard & Lifshitz that sets a $1 billion floor on investor recovery and assigns to investors any claims that the issuing companies might have against the securities firms. The assigned claims largely concern excess compensation claims, with plaintiffs’ lawyers charging that the firms required kickbacks of profits earned by their clients in the initial offerings, compensation that allegedly exceeded by a good deal the customary 7 percent investment fees earned on top of proceeds. At the Friday hearing attended by more than a hundred lawyers, attorneys told Scheindlin that approval from all of the defendants, and from the 309 issuers, some of whom are now bankrupt, was proceeding. They also reported that she would be able to schedule a fairness hearing on the settlement in November. In addition to laddering, the lawsuits charge that the firms labored under conflicts of interest and concealed extra compensation they received from clients awarded shares in hot offerings. The issuing companies that settled the case allegedly exploited the inflated stock prices by engaging in mergers and acquisitions or making new offerings, while some of their individual officers quickly cashed out of the inflated stock. Scheindlin, who was initially assigned more than 800 cases for pretrial motions and discovery in In re: Initial Public Offering Securities Litigation, 21 MC 92, used the hearing to pressure the attorneys on moving the cases forward, saying she did not want a schedule that pushed resolution of the cases “into 2005 or 2006.” She also set an aggressive schedule on the voluminous discovery requests. By next week, more than a million documents will have been delivered in discovery, Weiss said, with a “massive” amount still to come. When the defense asked for more time to provide documents that had already been produced to government regulators and investigators, Scheindlin gave them less than a month, saying the firms “knew this day was coming for a long time.” Gandolfo V. DiBlasi of Sullivan & Cromwell, liaison counsel for the defendant underwriter banks, had to argue for extra time to produce records being sought by the plaintiffs from the 55 firms. The hardest part of responding to the requests, he said, was restoring and searching e-mail tapes. “If we have to restore e-mail for 10 to 20 people [in a firm] and search it, that is a very time-consuming process,” DiBlasi said. He told the judge that the “defendants have no desire to see these cases languish.” Also on the agenda was class certification. Scheindlin gave the plaintiffs until the end of September to designate five focus cases for the certification issue, and gave the defendants until the end of October to designate their own five. The judge instructed the parties to have as much overlap as possible between the certification focus cases and the 10 to 20 focus cases that will be selected in January. Weiss said the document requests have little to do with retail investors because “it is really the institutional customers that is the focus.” He said the cases would, in general, not go “beyond the equity markets’ core group of brokers and deal managers.”

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