The Milberg Weiss 1990s IPO Class Action Suit May Have Imploded

Melvyn Weiss of indicted law firm Milberg Weiss appears to have left $3-$4 billion on the table in what now may be a lost cause:

Milberg’s Weiss Wanted $12.5 Billion in IPO Case

Dec. 6 (Bloomberg) — Melvyn Weiss, lead lawyer for investors suing Morgan Stanley, Credit Suisse Group and other banks for rigging initial public offerings, refused to settle the case for less than $12.5 billion, a lawyer said.

A federal appeals court yesterday refused to certify part of the case as a class-action, or group suit on behalf of millions of investors. The ruling means that investors who lost money must individually pursue the banks, making it far more difficult to press their claims or force a settlement.

The investors’ case was led by a six-attorney executive committee, headed by Weiss. One committee member, Howard Sirota, said in an interview today that he pressed Weiss to accept a possible settlement of $3 billion or $4 billion, which, Sirota said, the banks appeared willing to pay. Weiss refused to consider anything less than $12.5 billion, Sirota said.

There’s plenty of blame to spread around for the 1990s bubble:

• Companies without a track record, or even any idea of how they were going to make money, all of a sudden were able to skip straight from venture capital to going public without actually accomplishing anything in the meantime. In investing, there is a concept known as “suitability,” which in essence means that you don’t stick an investor with a higher level of risk that they can afford to bear based on their overall financial circumstances. By taking start-up ventures public, the underwriting community let the investing public down in the name of lining its pockets. Analysts who should have known better got taken in.
• The Clinton-Era SEC was asleep. The Commission didn’t, and still doesn’t, hesitate to go after penny-stock fraud when it can prove it. Many of these Internet start-ups were arguably enterprises that never had a chance, and in more than a few cases, I believe their founders knew it. They were in essence running penny stocks, but they just had “good” PR firms.
• But of course individual investors aren’t blameless either. Operating on the “bigger fool” theory, many surely thought they could cash in before the trouble started. Some did, but others are trying to blame someone else for their combination of greed and bad luck.

Surely there should be some form of recourse for truly misled investors. But there are two questions that I don’t see good answers for:

• How do you distinguish the intelligent greedy from the ones who were fooled?
• And how do you justify the lawyers involved in the class action, even if it somehow gets back on the rails, receiving normal contingency fees of somewhere around $1 - $3 billion, depending on the size of the ultimate settlement, if any (after expenses, which are usually fully reimbursed first)?

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UPDATE: Another partner leaves — “Embattled Milberg Weiss Bershard & Schulman partner Steven Schulman resigned from the law firm Friday under the cloud of criminal indictment.”

UPDATE 2, Dec. 9: Mike at Techdirt says –

….. many of the class action lawsuits that were filed in the wake of the bubble bursting were obviously more about trying to pass the blame, rather than accept the fact that everyone knew they were investing in duds, but were playing the game because it was making so many other people money. Most people weren’t really being deceived — and if anyone was deceiving them, it was probably themselves.

….. People who invested their money should know to have done their own due diligence while also recognizing that these were highly risky investments. While the firms were clearly misleading in some of their activities, and should have those practices stopped, to place all the blame on them isn’t right either. A successful class action lawsuit would have put all the punishment on these firms, and then shifted money from them mainly to the lawyers on the case.”