AntiSocialMedia.net by Judd Bagley

May 21, 2001
by David Glovin

New York, (Bloomberg) — Lawyers behind almost two dozen suits accusing investment banks of manipulating initial public offerings are battling to lead the cases and capture the multimillion-dollar fees a victory may bring. The attorneys are competing to be named lead counsel in suits that arose from a federal investigation into IPO practices by such firms as Credit Suisse First Boston, Goldman Sachs Group Inc. and Morgan Stanley Dean Witter & Co. On one side is Melvyn Weiss, the 65-year-old dean of the class-action securities bar. On the other: two lesser-known New York lawyers, Howard Sirota, who works with his wife in a three- attorney firm, and Christopher Lovell, a winner in 1998 of a $1.03 billion antitrust settlement. With a potential payday that could bring in tens of millions of dollars for their firms, the feuding lawyers have sometimes taken their fight out of the courtroom and into the corridors. “You know something — you’re a punk,” Weiss said to Sirota last month as the two left a courtroom where Weiss had won an early round. “That’s why you lost today.” “I haven’t lost yet,” Sirota replied, in an exchange witnessed by a reporter. Sirota added a few choice words denigrating Weiss’s firm. “I’ll sue you for libel,” Weiss said, glaring back. Apart from vitriol, the lawyers have used a variety of tactics to gain advantage. Weiss knocked his opponents in a letter to a judge. Each side is racing to file suits before the other does. Sirota and Lovell are betting on a flanking maneuver involving an antitrust suit against the banks. “We’re going to have the shootout at the OK Corral,” Sirota said.

Federal Investigation

Investors went to court after federal prosecutors and regulators began probing whether Wall Street banks manipulated the IPO market for Internet stocks in 1999 and 2000. The plaintiffs say they deserve billions in damages from IPO underwriters and the companies they took public, such as VA Linux Systems Inc., Red Hat Inc., MP3.com Inc., and 17 others named as defendants. The plaintiffs say underwriters secretly allocated IPO shares to investors who agreed to buy more later at higher prices. That practice, known as a “tie-in arrangement” and illegal under federal securities law, created an artificial demand for new stock, the suits contend. The plaintiffs also claim some investors who received IPO shares agreed to pay inflated commissions on other transactions with the investment banks. The companies and the banks didn’t disclose this to investors, according to suits filed in federal court in Manhattan. The banks and companies have denied wrongdoing, saying they followed securities regulations in the sale of IPOs.

‘Pot of Money’

Because stock fraud suits like these can come in clusters — more than 15 cases were filed against VA Linux alone — judges often consolidate them and name one law firm, or allied firms, to manage the case. This lead counsel can collect the lion’s share of fees if a suit results in a recovery. “They’re looking at a huge pot of money,” said Professor Alan Palmiter, who teaches securities law at Wake Forest University in Winston-Salem, North Carolina. “They know if they get into the driver’s seat, they automatically make hundreds of millions of dollars.” Lawyer David Boies recently won $26.7 million in a price- fixing case against Sotheby’s Holdings Inc. and Christie’s International Plc. Most of his co-counsels collected less than $100,000.

Lawyers Disagree

Because of the heft of his 190-lawyer firm, Milberg Weiss Bershad Hynes & Lerach, Weiss said he’s in the best position to prevail against Wall Street’s top investment houses. Milberg Weiss said it has recovered $30 billion from defendants. “These are enormous cases that need enormous resources,” Weiss said. Sirota, whose firm won a $93 million settlement in 1993 in a securities fraud case against Crazy Eddie Inc. co-founder Eddie Antar, claims he has an edge Weiss lacks. Sirota has long represented hedge fund manager Anthony Bruan, who’s cooperating with federal investigators and may provide testimony in the civil cases. “They don’t know the facts,” Sirota says of Milberg Weiss. “They don’t have the witnesses.” The stakes are high for all involved. In 1998, Lovell’s firm, Lovell & Stewart, won a $1.03 billion settlement in an unrelated antitrust suit against more than two dozen Wall Street market makers, including all seven banks named in the IPO antitrust suit.

Old Rivals

Sirota said his rivalry with Weiss dates back to 1988, when they fought over the lead position in the Crazy Eddie case. Moments before their hallway confrontation on April 19, U.S. District Judge Miriam Cedarbaum had awarded to Weiss’ firm control of suits alleging improprieties in the VA Linux IPO, dismissing Sirota’s attack on how Milberg Weiss had prepared its case. Under the law, control goes to the lawyer representing the plaintiff claiming the biggest loss. That turned out to be a Swiss company that Milberg Weiss represented, Cedarbaum said. Sirota responded by telling Cedarbaum that Weiss should submit documents to prove his client’s losses. Cedarbaum agreed, and a final ruling is pending.

Legal Leverage

Meantime, Sirota says that he and Lovell have won the agreement of the defendants that they should be named lead counsel in the antitrust suit they have brought against the banks, accusing them of colluding to raise IPO underwriting fees. The pact has yet to be endorsed by the judge in the case. Because the antitrust case encompasses all the IPOs at issue in the fraud suits, Lovell and Sirota may be able to leverage the lead counsel position in the antitrust litigation into control over all the cases, legal experts said. Palmiter called the maneuvering by Sirota and Lovell a “very powerful, even brilliant, tactic.” Fighting back, Weiss sent a letter to U.S. District Judge William Pauley, who’s presiding over the antitrust case, and to all the judges hearing the stock fraud suits, urging rejection of the bid by Sirota and Lovell for total control. Weiss said he noted in the letter that his firm would be filing its own antitrust suit. “We felt the Sirota case was hurriedly put together,” he said.

More Competition

Meanwhile, a third firm, Wolf Haldenstein Adler Freeman & Herz, has joined the fray, filing its own antitrust case. It too wants to be lead counsel. Weiss and Sirota agree on one thing at least: the suits should be consolidated into one case, heard by a single judge. Weiss wants to lead it. But he’ll have to get past Sirota first. “You heard him attack me and yell,” Weiss said of the VA Linux brouhaha. “He said, ‘You’ll never make a nickel in these cases.’ And to me, that’s a threat.” –David Glovin in U.S. District Court in New York (212) 732-9245, or at dglovin@bloomberg.net.