In re Initial Public Offering Securities Litig.

• Decision Date: 05 October 2009
• Docket Number: Master File No. 21 MC 92.
• Parties: In re INITIAL PUBLIC OFFERING SECURITIES LITIGATION.
• Court: U.S. District Court — Southern District of New York

671 F.Supp.2d 467

In re INITIAL PUBLIC OFFERING SECURITIES LITIGATION.

Master File No. 21 MC 92.

United States District Court, S.D. New York.

October 5, 2009.

COPYRIGHT MATERIAL OMITTED

Stanley D. Bernstein, Esq., Rebecca M. Katz, Esq., Christian Siebott, Esq., Bernstein Liebhard LLP, Robert A. Wallner, Esq., Ariana J. Tadler, Esq., Peter G.A. Safirstein, Esq., Neil Fraser, Esq., Milberg LLP, Jules Brody, Esq., Stull, Stull

& Brody LLP, Howard B. Sirota, Esq., Sirota & Sirota LLP, Fred Taylor Isquith, Esq., Thomas H. Burt, Esq., Wolf Haldenstein Adler Freeman & Herz LLP, New York, NY, David Kessler, Esq., Barroway Topaz Kessler Meltzer & Check LLP, Radnor, PA, for Plaintiffs' Executive Committee.

Gandolfo V. DiBlasi, Esq., Penny Shane, Esq., David M.J. Rein, Esq., Richard J.L. Lamuscio, Esq., Sullivan and Cromwell LLP, New York, NY, Liaison Counsel for Underwriter Defendants.

Jack C. Auspitz, Esq., Joel C. Haims, Esq., Hilary M. Williams, Esq., Angela T. Rella, Esq., Reema S. Abdelhamid, Esq., Morrison and Foerster LLP, New York, NY, Liaison Counsel for Issuer Defendants.

OPINION AND ORDER

SHIRA A. SCHEINDLIN, United States District Judge:

I. INTRODUCTION

This consolidated action comprises hundreds of securities class actions brought against issuers and underwriters of technology stocks that had their initial public offerings ("IPOs") during the late 1990s. On April 2, 2009, the parties filed a Stipulation and Agreement of Settlement ("Stipulation") that seeks to conclude eight years of litigation in all 309 coordinated class actions. Following the Court's preliminary approval of the proposed settlement, plaintiffs now move for an Order of Final Approval of the Settlement, Plan of Allocation, and Class Certification. The Plaintiffs' Executive Committee (the "Committee") moves the Court to grant Attorneys' Fees and Reimbursement of Expenses and Private Securities Litigation Reform Act ("PSLRA") Awards to the Lead Plaintiffs and Class Representatives of the 309 settled actions. For the reasons stated below, plaintiffs' motion for an Order of Final Approval of the Settlement, Plan of Allocation, and Class Certification is granted. The Committee's motion for the Award of Attorneys' Fees and Expenses and PSLRA Awards is granted, but not for the amounts requested.

II. BACKGROUND

A. Plaintiffs' Allegations

Plaintiffs' allegations are discussed at length in a series of earlier Opinions.¹ In brief, plaintiffs allege that the underwriters of hundreds of IPOs required allocants in those IPOs to purchase shares in the aftermarket, often at inflated prices, and to pay the underwriters undisclosed compensation.² Additionally, the underwriters allegedly prepared analyst reports that contained inaccurate information and recommendations.³ Plaintiffs allege that the issuers participated in or were at least aware of this misconduct and benefitted financially by large run-ups in the prices of their stock.⁴ Finally, plaintiffs allege that they lost billions of dollars as a result of these manipulations and the fraudulent statements made to cover up the scheme. Plaintiffs have brought claims under both the Securities Act of 1933 (the "Securities Act") and the Securities Exchange Act of 1934 (the "Exchange Act").

B. Settlement Terms

In April 2009, the parties entered into a global settlement of the 309 cases, which is subject to this Court's approval.⁵ The Stipulation provides that defendants will pay a total of $586 million ("Settlement Amount") in exchange for plaintiffs releasing all Settled Claims against them.⁶ The Stipulation further provides that the Settlement Amount less any advances will be deposited into an escrow account at least fourteen days before the date of the fairness hearing.⁷ The parties have stipulated that final approval of the settlement in all of the actions is required.⁸

C. Class Certification

On October 13, 2004, I issued an Opinion and Order certifying classes in each of six focus cases.⁹ The classes consisted of "all persons and entities that purchased or otherwise acquired the securities of [the issuer] during the Class Period and were damaged thereby, subject to various exclusions."¹⁰ The Class Periods for the Exchange Act claims were the periods from the respective IPOs through December 6, 2000. For the Securities Act Claims, the Class Periods were limited to periods in which all tradeable shares in the market could be traced to the IPOs.¹¹

In June 2005, the Second Circuit granted defendants' petition for leave to appeal pursuant to Rule 23(f) of the Federal Rules of Civil Procedure. The Circuit directed the parties to address the proper standard for a class certification motion and whether the Basic v. Levinson presumption of reliance was appropriately extended to plaintiffs' claims.¹²

On December 5, 2006, the Second Circuit announced its Opinion in Miles v. Merrill Lynch & Co. ("Miles I").¹³ In Miles I, the Circuit revised the standard to be applied in class certification actions and then applied that new standard to this case.¹⁴

The court also concluded that plaintiffs "cannot satisfy the predominance requirement for a(b)(3) class action" because individual questions predominated over common questions in the areas of knowledge and reliance.¹⁵ First, the court held that plaintiffs could not take advantage of the Basic presumption of reliance.¹⁶ The court noted that "the market for IPO shares is not efficient," citing the fact that no analyst reports are published during the 25-day "quiet period."¹⁷ Second, the court ruled that many potential claimants would have known that the price was "affected by the alleged manipulation," thereby making it difficult for plaintiffs to prove that they were ignorant of inflated prices, a prerequisite of a section 10(b) claim.¹⁸ The court noted that the classes as defined included initial IPO allocants, who were "required to purchase in the aftermarket" and who were "fully aware of the obligation that is alleged to have artificially inflated share prices."¹⁹ It also noted plaintiffs' admission that there was an "industry-wide understanding" of aftermarket purchases, evidenced by the knowledge of the many thousands of people employed by the institutional investors who had been parties to the tie-in agreements and by news reports and a Securities Exchange Commission ("SEC") Staff Legal Bulletin that had publicized such practices in 1999 and 2000.²⁰

This appeared to close the door on any opportunity for class certification in these cases. However, on April 6, 2007, the Miles panel issued a decision denying rehearing of Miles I but clarifying certain points in its original opinion ("Miles II").²¹ Plaintiffs had argued in their petition for rehearing that the Circuit had erred both in finding that predominance could not be satisfied and in failing to remand to this Court for evaluation of the class under the clarified standard.²² Specifically, plaintiffs argued that non-allocants who purchased shares in the aftermarket "would have relied on the market price of the shares and would have lacked knowledge of the alleged fraud...."²³

The Circuit explained that its decision in Miles I applied only to the broad class certified by this Court.²⁴ Thus, the Circuit resolved both of plaintiffs' arguments by observing that "[n]othing in [Miles I] precludes the Petitioners from returning to the District Court to seek certification of a more modest class, one as to which the Rule 23 criteria might be met, according to the standards we have outlined."²⁵ The Circuit concluded, "we leave it to the Petitioners in the first instance to seek whatever relief they deem appropriate from the District Court, which can be expected to give such a request full and fair consideration."²⁶

According to the Stipulation, the parties have agreed to class certification in each of the 309 cases pursuant to Rule 23(a) and Rule 23(b)(3):

[A]ll Persons who purchased or otherwise acquired any of the Subject Securities at issue in such case during the Settlement Class Period applicable to such action and were damaged thereby.

(a) Subject to the review provisions provided in Paragraph 20 [of the Stipulation],²⁷ excluded from the Settlement Class is each Person, other than a Natural Person, that was identified as a recipient of an allocation of shares from the "institutional pot" in the IPO or Other Charged Offering of any of the 309 Subject Securities, according to a list derived from the final "institutional pot" list created at the time of each IPO or Other Charged Offering by the lead Underwriter in that Offering ("Excluded Allocants").

(b) Also excluded from the Settlement Classes are (i) each Person that currently is or previously was a named defendant in any of the 309 Actions (hereafter "Named Defendant"), (ii) any attorney who has appeared in the Actions on behalf of a Named Defendant, (iii) members of the immediate family of any Named Defendant, (iv) any entity in which any Excluded Allocant or Named Defendant has or during any of the class periods had a majority interest, (v) the legal representatives, heirs, successors or assigns of any Excluded Allocant or Named Defendant; and (vi) any director, officer, employee, or beneficial owner of any Excluded Allocant or Named Defendant during any of the Settlement Class Periods. Notwithstanding the prior sentence, a person shall not be excluded from the Settlement Classes merely by virtue of his, her or its beneficial ownership of the securities of a publicly-traded Excluded Allocant or Named Defendant.²⁸

In each settled action, the Class Period is from the date of the IPO until December 6, 2000.²⁹

In a June 10, 2009 Opinion and Order ("June Opinion and Order"), I certified the settlement classes in this case after reconsidering the Rule 23(a) and (b) factors in light of the Circuit's new standards.³⁰ I held that plaintiffs had demonstrated by the preponderance of the evidence that reliance and loss causation could be proven on a...