IPO Suit Wins Approval, But Consumers Will See Pennies Per Share

US District Judge Shira Scheindlin has issued an order giving approval of a unique pooled settlement of $1 billion in a class action suit filed against nearly 300 startup companies and 55 investment banks.

The suit claims that the banks artificially inflated the share price of companies that were brought public. If the class representing the investors in those stocks receive payment of $1 billion as a class, the companies will have to pay nothing. Any difference between the banks' settlement and $1 billion must be made up by a pool of the companies involved.

Judge Scheindlin, a 1994 appointee of then-President Clinton, noted in her opinion that "the average per-share recovery across all 298 class actions is $0.087 per share." She also remarked that the range of recovery ranges from very small ($0.002 per share for CNet) to larger ($0.507 for McAfee.com).

Even investors in McAfee, the largest per share settlement noted, will receive relatively little compensation. Shares of McAfee (MFE) were trading at approximately $25 each when Judge Scheindlin released her opinion. The company, which does not pay a dividend, has earned $1.36 per share over the past twelve months, representing $229 million in net income.

posted by Consumer Help Web Editorial Team at 11:42 AM |