IPO Defendants Ask Judge to Step Down

Wall Street brokerages accused by investors of manipulating initial public offerings have asked that the judge in charge of the cases step down because she and members of her family bought some of the IPOs named in the suits, federal court documents showed Tuesday.

Forty-one Wall Street firms and 171 companies have been named as defendants in more than 800 lawsuits that essentially allege the investment banks and the companies they brought public in recent years artificially pumped up prices of newly issued shares, according to documents filed in U.S. District Court for the Southern District of New York in early September.

The plaintiffs in these suits, mainly individual investors, accuse the brokerages of charging institutional clients abnormally high commissions for IPO shares and requiring them to buy more IPO shares on the first day of trading to guarantee a “pop,” or a rise in the stock price. The plaintiffs are seeking class-action status for their lawsuit.

Many Internet and other tech offerings skyrocketed on their first day of trading in 1999 and 2000. The shares have since crashed in the market’s wrenching 20-month slide. Disgruntled investors are trying to recoup some of their losses through court action.

Jeffrey Barist, a lawyer representing Deutsche Banc Alex. Brown, one of the investment banks named in the litigation, in a court hearing last week asked that U.S. District Judge Shira Scheindlin recuse herself from the case.

Barist is seeking the judge’s recusal because she and her husband bought the shares of two technology companies that are named in the cases and their adult son owns shares of another company.

The brokerages claim the judge may be partial to the plaintiffs because she is “one of the people who allegedly was damaged by the scheme,” Barist said last week, according to a court transcript.

Among the defendants, all the underwriters except two--Morgan Stanley Dean Witter and Dain Rauscher--joined the request for the judge to step down.

The judge has rejected the implication of partiality, saying she has “renounced any interest in participating in the class,” and disclaimed knowledge of her son’s investment activities. She asked the lawyers to submit a legal brief on the matter by Oct. 15.

The discussion of the request for the judge’s recusal may further delay the timetable of the civil lawsuits, which has been disrupted by the Sept. 11 attacks on the World Trade Center, a few blocks away from where the federal courthouse and many law firms are located.