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The mountain of litigation over the collapse of stock prices following initial public offerings in the technology boom has moved to a new phase with the certification of six class actions. Setting the stage for settlement talks or a possible trial in suits filed over the handling of 310 initial public offerings, Southern District of New York Judge Shira Scheindlin last week certified classes in suits against VA Linux Corp. and five other “focus cases” in In re: Initial Public Offering Securities Litigation, 21 MC 92. The lawsuits, filed between Jan. 11 and Dec. 6, 2001, under the 1993 Securities Act, charge that 310 companies and the investment banks that brought those companies’ shares to market defrauded investors on a grand scale. Underwriting banks allegedly made investors who were allocated IPO shares buy the shares in the aftermarket, sometimes at escalating prices, and pay additional, undisclosed compensation. As part of the alleged scheme, the underwriters issued misleading recommendations on stocks through analysts who labored under conflicts of interest. The cases were consolidated before Judge Scheindlin for pretrial supervision. She developed a plan with the attorneys to try six focus cases. While the ruling on class certification for the six cases governs those cases only, Scheindlin said most of the same issues raised here would be raised in connection with certification motions for the remaining 304 cases. Her 148-page opinion released Thursday, the judge said, “is intended to provide strong guidance, if not dispositive effect, to all parties when considering class certification in the remaining actions.” In addition to VA Linux, the cases selected for consideration of class certification are Sycamore Networks Inc., iXL Enterprises Inc., Firepond Inc., Engage Technologies Inc., and Corvis Inc. The underwriter and offering defendants, Scheindlin said, raised “every conceivable argument” against class certification, but “their main contention is that individual issues predominate over common issues with respect to almost every aspect of proof.” Each plaintiff investor, the defendants argued, had different knowledge of the alleged scheme based on when they invested, the nature of their investment, the amount of damages and the link between their shares and the allegedly misleading statements in any particular offering or the registration statement for that offering. Noting that the defendants also said it would be impossible to determine which investors should be in which class and who must be excluded, the judge rejected their arguments. “In their zeal to defeat the motion for class certification, defendants have launched such a broad attack that accepting their arguments would sound the death knell of securities class actions,” she said, adding the class action device is “particularly well suited to securities fraud cases” because the same fraud is perpetrated on many people through similar misrepresentations. “In opposing certification, defendants do not seek truly separate adjudications of each individual claim,” she said. “In reality, they seek no adjudication, because the prospect” of individual lawsuits “represents an impossible burden for all parties — the individual plaintiffs, the defendants and the courts.” Therefore, the judge said, defeating class certification is essentially the same as defeating the claims without having to defend them on their merits. “Trying these cases will be an arduous task, but that is no reason to close the courthouse door to the alleged victims of a sophisticated and widespread fraudulent scheme,” she said. Liaison counsel for plaintiffs are Melvyn I. Weiss, Robert A. Wallner, David A.P. Brower and Ariana J. Tadler of Milberg Weiss Bershad & Schulman, and Stanley Bernstein and Rebecca M. Katz of Bernstein Liebhard & Lifshitz. Liaison counsel for defendant underwriters are Gandolfo V. DiBlasi and Penny Shane of Sullivan & Cromwell. Liaison counsel for defendant issuers is Jack C. Auspitz of Morrison & Foerster.

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