A lawsuit aiming to hold Wall Street banks accountable for alleged manipulation of technology stock prices in the dotcom boom has failed to win class action status. The ruling could save the banks billions of dollars in payouts.
The suits accused Wall Street banks of colluding with investors to buy shares once a company floated on the stock markets, driving up prices in the so-called after market and making money for those favoured investors it had granted pre-flotation stock.
The suit also said that banks artificially inflated the prices of companies floated in initial public offerings (IPOs) and that they created misleading research about the firms to lure investors into buying the stock.
US legal experts predicted that the case would have been unlikely to go to trial, and would most likely have been settled by the banks. Virtually every investment bank is involved in the case and it could have cost them billions of dollars to settle.
A previous ruling from a federal judge had allowed 310 separate cases to be consolidated into six 'focus' cases. These six cases were granted class action status. Class action suits allow a large number of cases involving similar points of law to be tried together and commonly involve massive payouts because of the large numbers of claimants involved.
That was overturned, though, by a panel of three judges in a federal appeals court, which said that the cases should not have been granted class action status.
The case involved 300 investors, 309 issuing companies and 55 underwriting banks, including the biggest names on Wall St such as Morgan Stanley, Credit Suisse First Boston, Goldman Sachs and Merrill Lynch.
"It's not over," Melvyn Weiss, a founder of one of the law firms acting for the claimants, told the New York Times. "We have the right to seek a review by the entire panel of the Second Circuit. I think the decision doesn't reflect a real understanding of how people get defrauded in our society."