JPMorgan to pay $425m in IPO lawsuit

JPMorgan has agreed to pay $425m to settle a lawsuit alleging it manipulated the market for initial public offerings during the technology boom of the late 1990s, the bank said on Thursday.

The deal is the first in the case and could put pressure on other Wall Street banks to pay billions in aggregate.

The eventual overall settlement is likely to be the largest private recovery for investors burned by Wall Street’s aggressive tactics during the bull market.

“It’s the first breakthrough with the underwriters,” said Melvyn Weiss, partner at Milberg Weiss Bershad & Schulman, the law firm representing the investors who brought the case. Milberg Weiss is the most prominent class action law firm in the US, best known for winning settlements against Prudential Insurance, Swiss banks, and Drexel Burnham Lambert.

Mr Weiss added that JPMorgan was lead underwriter in only 11 of 191 IPOs covered by the case in which it was involved, suggesting other banks could have to make bigger settlements.

The lawsuit targeted other banks including Credit Suisse, Morgan Stanley and Goldman Sachs, alleging they rigged IPOs, pushing investors to pay excessive commissions to get allocations of shares.

In addition, the suit alleges that stock analysts employed by the banks had undisclosed conflicts of interest and made “buy recommendations” for shares, helping to artificially inflate prices.

Joe Evangelisti, spokesman for JPMorgan, confirmed that an agreement had been reached in principle. “There would be no adverse effect on our financial results,” he said.

The deal has to be agreed with all the plaintiffs and by the court before it can be finalised, according to Mr Weiss. “It’s far off,” he said.

The development in the lawsuit against the Wall Street banks follows a ground-breaking 2003 settlement that called for more than 300 companies that went public in the late 1990s and their insurers to pay $1bn to investors.

The companies will not have to pay anything, however, if Milberg Weiss can get more than $1bn from the dozens of investment banks that underwrote the IPOs and are named in the lawsuit.

The issuing companies could even receive compensation if the banks end up paying more than $5bn altogether.

At the time, legal analysts estimated that Wall Street could end up paying more than that to settle the lawsuit.

“[The JPMorgan settlement] doesn’t add much new money because we have the $1bn guarantee from the issuer settlement,” said Mr Weiss. “I think it gives a lot of psychological cover for the other banks to now come to the table.”