Bookham Technology and its investment bank advisers Goldman Sachs are being sued by disgruntled investors over the firm's £1.2bn flotation in April last year.
Shareholders are alleging that certain investors received favourable treatment in the allocation of shares. The offer, priced at £10, rocketed to £24.62 at the end of the first day's trading.
It is thought that similar proceedings are being prepared in relation to some 300 US and UK share issues.
A US District Court in New York yesterday was considering a complaint filed last month against Bookham and the US investment banks who underwrote its share offerings, Goldman Sachs and FleetBoston Robertson Stephens. The filing also names Andrew Rickman, the company's chairman, Stephen Cockrell, its former chief financial officer and secretary, and David Simpson, its former chairman because their signatures appear on the company's registration documents.
The complaint alleges that Bookham issued a "materially false and misleading" flotation prospectus, which failed to disclose that the underwriters "solicited and received excessive and undisclosed commissions from certain investors" who were subsequently rewarded and received allocations in the restricted offering.
It also accuses the advisers of engaging in so-called laddering, whereby certain investors agreed to buy Bookham shares in the after market at pre-determined prices.
Bookham and Goldman Sachs strongly denied the allegations. "We regard these claims as groundless and we will be contesting them vigorously," said a Bookham spokesman. "Hundreds of companies are the subject of similar claims."
Goldman echoed its client's comments. But Milberg, Weiss Bershad Hynes & Lerach, which is among the six US law firms spearheading the action, said papers were in the process of being served against the defendants. The firm was receiving "many" calls a day from disgruntled investors who are entitled to join the action if they purchased shares between 11 April and 6 December last year.
"Tens of thousands of investors have lost a lot of money," said Samuel Rudman, a partner at the firm. "There has been an exhaustive investigation by the plaintiffs' counsel. We have very strong evidence that these practices took place." He added that it would take "some time" before litigation began in earnest, although the action would continue to proceed even if the US financial regulator, the Securities and Exchange Commission, drops its own separate investigation.
US investment banks have been blamed for contributing to the present economic slump because their aggressive promotion of technology share issues throughout 1999 and 2000 created an investment bubble that later burst. Investors remain fearful and hi-tech industries are still awash with capacity. But industry insiders are sceptical as to whether any of the class actions being brought against Wall Street have any chance of success. One reason so many are filed is because it does not cost anything to do so.
Credit Suisse First Boston and Merrill Lynch are rare on Wall Street in having settled similar actions out of court.Reuse content