NEW YORK Tech companies to pay to settle fraud case

The massive case involves hundreds of lawsuits .
NEW YORK (AP) -- More than 300 companies that staged hot initial public offerings during the tech boom agreed to pay investors $1 billion to settle allegations they were complicit in schemes by investment banks to rig stock sales to benefit themselves and favored customers.
Under the tentative settlement announced Thursday, the 309 companies also agreed to cooperate in the continuing case against 55 brokerages accused of making secret deals for coveted shares and artificially inflating the prices. The massive case involves hundreds of lawsuits filed by investors over IPOs between 1998 and 2000, issued by such former high-flyers as theglobe.com, Global Crossing, MP3.com, Ask Jeeves and Red Hat.
The proposed settlement guarantees that plaintiffs will receive at least $1 billion from the tech companies' insurers, said Melvyn I. Weiss, chairman of a committee of attorneys representing the investors. The class, which has not been formally defined, will cover any investor who bought shares at the time of the IPOs or in the aftermarket, up until Dec. 6, 2000, he said.
"This covers everybody who lost money. Most of our lead plaintiffs are just ordinary people who are investors," he said.
Looking to strengthen position
Settling with the companies -- who plaintiffs say knew or should have known about the possible misconduct -- will strengthen the investors' position as they negotiate with the banks, Weiss said.
The plaintiffs are looking to recover "many billions" of dollars from the investment banks, Weiss said. The firms, including J.P. Morgan, Credit Suisse First Boston, Merrill Lynch and Smith Barney, are accused of plotting to artificially inflate the value of IPO stocks through a practice called "laddering," which involves doling out shares to investors based on their commitments to buy additional stock after trading begins.
In addition, some customers who invested in IPOs were compelled to give extra compensation to the banks, sometimes through inflated commissions on other trades. Later, after the so-called "quiet period" that follows IPOs, analysts who worked for the banks issued favorable research to fluff up the stocks, whether they were worthy or not.
As part of the settlement, the tech companies have agreed that any claims they might have against the investment banks will be assigned to the plaintiffs' class.
No funds will be paid to investors until the case against the banks is resolved, however. If more than $1 billion is recovered from the banks, the tech companies' will not have to pay anything, the lawyers said. If the award is more than $5 billion dollars, the tech companies and their insurers will be able to recover expenses.