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N.Y. Judge Approves $586M IPO Settlement

(CN) - A federal judge in Manhattan has approved a $586 million settlement of 309 class actions accusing underwriters of artificially inflating the value of stock in technology companies that went public in the 1990s, causing investors to lose billions when the tech bubble burst.

Starting in 2001, thousands of investors sued 55 underwriters of more than 300 issuers of technology-related stock. Investors claimed that in the aftermarket between 1998 and 2000, underwriters artificially boosted stock prices and charged hidden and excessive fees. Stock analysts working at the banks allegedly issued false reports, misleading investors while investment banks benefitted from large run-ups in stock prices. Investors lost billions as underwriters tried to cover up the fraudulent behavior, the ruling states.

U.S. District Judge Shira Scheindlin called the massive settlement "fair, reasonable and adequate," ending eight years of litigation.

Scheindlin certified classes in six focus cases in 2004 to deal with the wave of class actions, which ran up to 309.

In 2005, Scheindlin approved a partial settlement with a guaranteed recovery of $1 billion. But the settlement was "derailed" when the 2nd Circuit decertified the classes in December 2006. On appeal, the circuit panel clarified that the case could go back to the district court with "a more modest class."

Judge Scheindlin then preliminarily approved the settlement in June, certifying the settlement classes. The new class definition was narrower, which lowered the recovery from $55 billion to $32 billion due to the limited number of potential claimants. At the outset of the litigation, 7 million potential class members were notified.

As of Sept. 10, claims administrator Garden City Group had received more than 100,000 claims, according to the ruling.

Two mediating judges on the cases said that after "nine months ... seven full mediation sessions, and countless phone conferences," the settlement was "fully negotiated."

Attorneys representing class members have spent more than 1 million hours working on the cases, Scheindlin said.

Settlement approval was bolstered by the fact that "the economy shows signs of recovery, and a number of the underwriter defendants no longer appear to be faltering," Scheindlin wrote.

After taxes and fees, the settlement will be divvied up in proportion to the plaintiffs' claimed damages, the highest of which is around $20 million.

Investment banks Credit Suisse Group, Morgan Stanley, Merrill Lynch, Bank of America, JPMorgan Chase, Goldman Sachs and Citigroup are listed among the underwriters in the settlement.

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