JPMorgan Chase & Co., one of dozens of banks sued by investors who claimed the companies rigged initial public offerings during the 1990s Internet stock boom, agreed to pay $425 million to settle the case, the bank said Thursday.
JPMorgan would be the first to resolve the allegations, leaving Morgan Stanley, Credit Suisse, and Goldman Sachs Group Inc. among the remaining defendants. The agreement may pressure more banks to settle.
"If you look at some of the other big settlements involving the big investment banks, you'll see that the first bank to break ranks and settle obviously puts pressure on the others," said Michael A. Perino, who teaches securities law at St. Johns University School of Law.
Seventeen banks that were sued over the WorldCom accounting fraud paid a total of more than $6 billion after Citigroup Inc. was first to settle. The largest payment in a similar class-action was $7.2 billion, in a securities fraud case brought by Enron investors. Most of that was paid by Enron's banks.
"The deal with JPMorgan implies an aggregate recovery in the billions," said Howard Sirota, one of the lead lawyers in the case and a partner at New York-based Sirota & Sirota. "It will likely have a catalytic effect on the remaining defendants."
JPMorgan spokesman Joe Evangelisti said that an agreement had been reached "in principle."
"It would have no material adverse effect on our financial results," he said.
The bank announced the settlement after the close of regular trading, during which its shares fell 2 cents to $42.60. The stock was little changed in the after-hours market.
The agreement is subject to approval by the investors and by two judges presiding over the cases in federal court in New York.
The claims were filed after technology stocks that went public and soared during the collapse of the bull market in 2000-01. Lawyers for the investors said they were seeking billions of dollars in damages.
In one class action, investors claim the banks manipulated the market in more than 300 IPOs for technology companies such as Razorfish Inc. and Red Hat Inc. The securities fraud case names dozens of underwriters, including JPMorgan, as defendants. The technology companies also were named.
In a second suit, 12 banks were accused of colluding to rig IPOs. JPMorgan is also a defendant in that antitrust case.