Underwriter laddering cases, as they are known, have resulted in over 150 securities class actions filed this year. Thus far, all the cases have been coordinated before Judge Shira Sheindlen of the Southern District of New York. Milberg Weiss reportedly makes 5 filings per day, and Wolf Holdenstein, Stull Stull & Brody, Lovell Stewart, and Bernstein Litowitz also represent aggrieved investors suing underwriters. Recently Judge Kaplan SDNY has used an auction-bidding process to assign lead counsel to unrelated class actions, so attorneys may be competitively bidding for the chance to win a judgment against the $200 billion investment industry. Professor Joseph Grundfest of the Stanford Law School, a former SEC commissioner, thinks it will be hard for any plaintiffs to prove that laddering is illegal, and even harder to prove injury "given the dynamics of after-market behavior, it will be very difficult to prove they suffered damages".
The defendant underwriters contend that the market, especially in a new industry, like the Internet marketplace, is bound to fluctuate. The defense bar argues that in order to evaluate a fair offering price for stock, a broker must gauge investor interest in buying in the after-market phase. The coordinated cases involve virtually all the well known Wall Street brokerage houses, including Lehrman Brothers, Merrill Lynch, Morgan Stanley, BancBoston, and Solomon Smith Barney. Though many of the dot.com defendants are now defunct, and tapped of all resources, they carry D & O insurance policies which can yield up to $20 million.
These class action filings and the associated press coverage has attracted the interest the Justice Department and the Securities and Exchange Commission, both of which are currently conducting related criminal investigations. In a June Congressional hearing, brokers were probed about the ethics of laddering and the alleged conflict of interest arising from broker commissions on securities sales. This new breed of class action has spurred the Securities Industry Association to release new industry ethical guidelines, calling for the use of more caution when marketing IPOs to clients. Several named defendants have made internal changes including underwriter Credit Suisse which recently removed its technology sector investing directors and named a new chief executive officer.