They were inflating - having fun

JP Morgan Bank pays for IPO irregularities

Large American bank JP Morgan Chase & Co. became the first credit institution to voluntarily settle the so-called telecom boom lawsuits, which were brought in connection with violations of the rules for initial public offerings (IPOs) of high-tech companies. Last Friday, the bank's management agreed to pay $425 million to affected investors in order to get off the relevant blacklist of financial institutions.

In the late 1990s, Internet companies began to boom on stock exchanges. When, in 2000-2001, following a successful IPO, shares in the IT sector began to fall sharply in price, disgruntled investors decided to seek protection in court. Currently, the American media are talking about 300 lawsuits through which investors hope to receive compensation for violating IPO rules.

JP Morgan decided to settle two claims at once. The first dealt with fraud in the securities market. In this process, banks were assigned the role of market manipulator in the implementation of IPOs of several hundred technology companies, including such giants as Razorfish Inc. and Red Hat Inc. The second lawsuit was related to violation of antitrust laws - JP Morgan was among 12 banks that were charged with fraudulent conspiracy to conduct an IPO. Melvin Weiss, a lawyer for the group of investors suing the bank, noted that JP Morgan was the underwriter of 11 IPOs and acted as lead manager for 180 more.

A JP Morgan spokesman said the agreement reached to settle the claims was not clearly developed and had yet to receive approval from investors and the two judges presiding over the trials in New York Federal Court. He also emphasized that the payments will not have a noticeable negative effect on the bank’s financial results. “This is a very strong breakthrough,” said Mr. Weiss, “but it is still necessary to discuss the details of the settlement.”

By filing lawsuits, investors expect to receive good compensation. It is possible that in the near future many of the accused will follow the example of JP Morgan. “Eventually, the remaining defendants will be under pressure to settle,” Robert Heim, former SEC enforcement officer, told Bloomberg. In his opinion, when the first agreement on claims is concluded, further settlements become a matter of time. The next alleged defendants could be Goldman Sachs Group Inc., Credit Suisse and Morgan Stanley. The main complaint against these banks is their interest in first purchasing shares of Internet companies as part of an IPO, and then quickly selling them at a higher price immediately after the placement. Banks have been accused of inflating stock prices of companies such as Equinix Inc. and Firepond Inc. ahead of their sharp decline.

"JP Morgan may have learned a history lesson from WorldCom if it decided to go ahead with the deal," Mr. Heim said.

Denis UVAROV