Banks Agree to $586 Million Settlement with Disgruntled Investors

By Evan Mix

Published on April 13, 2009

After a decade-long dispute, several dozen banks and insurers have agreed to a $586 million settlement with a group of investors who lost millions investing in the initial public offerings (IPOs) of tech companies during the dot-com boom of the late 1990s. The investors sued Goldman Sachs, Morgan Stanley, and dozens of other banks that underwrote the IPOs over policies that allegedly contributed to market inflation.

At the center of the controversy were rules requiring investors who got shares of in-demand IPO stocks to buy additional shares at higher prices after trading began. The investors claim that this practice had the effect of artificially inflating the value of stock in hundreds of different companies. The defendants have repeatedly denied all wrongdoing.

The settlement must still be approved in court. In 2006, a tentative agreement on settlements totaling more than $1 billion was invalidated when the Second Circuit overturned a lower ruling certifying the suit as a class action.

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