Internet, Software Firms May Sue IPO Underwriters Over Pricing

Internet start-ups and software companies sued by investors over their initial stock offerings are considering filing their own lawsuits accusing the underwriters that took them public of underpricing their stock, according to court records.

Attorney Jack Auspitz, who represents 300 companies including Razorfish Inc., Red Hat Inc. and DoubleClick Inc. in the investor suits, said some of his clients may sue the underwriters.

Creditors of now-defunct Mortgage.com were the first to make the underpricing claim against an investment bank.

In a suit filed in May, they accused Credit Suisse First Boston Corp. of charging too little for IPO shares of the Internet home and commercial finance company in a bid to curry favor with institutional investors.

Auspitz declined to comment.

Mortgage.com creditors said in their suit that the company and other Internet start-ups were “deprived of millions of dollars in IPO proceeds to which they were lawfully entitled.” The suit seeks class-action status on behalf of other firms that were taken public by CSFB.

The bank has denied the allegations.

Sunrise, Fla.-based Mortgage.com sold 7 million shares when it went public in August 1999, raising $56.5 million. The stock debuted at $8 a share, nearly tripled to a high of $22.75 within a month and then fell to less than $1 within a year.

The company was liquidated in December 2000.

Shareholder suits already are pending against about 40 underwriters, including CSFB, Goldman Sachs Group Inc., and Lehman Bros. Holdings Inc., and more than 300 technology firms. Plaintiffs in the suits say the banks secretly allocated IPO shares to investors who agreed to buy more stock at higher prices after the IPO, when shares were made available to the public.

That practice created an artificial demand, the suits say.

The Internet-related and software firms are accused of making misleading statements in their prospectuses.

Plaintiffs’ lawyers say damages against the banks and the companies they took public might top $1 billion.