A U.S. federal judge abruptly dismissed a lawsuit against brokerage Morgan Stanley and its famed Internet analyst Mary Meeker on Tuesday, effectively neutralizing similar claims by shareholders of eBay (Nasdaq: EBAY), Amazon.com (Nasdaq: AMZN) and AOL Time Warner (NYSE: AOL).
Judge Milton Pollack of the U.S. Southern District of New York said in his surprise decision that the lawsuit was “in grossly bad taste” and amounted to “an abuse” of federal laws protecting shareholders.
Pollack said that the suit relied too heavily on contemporary newspaper and magazine accounts of stock recommendations, and noted that the suit repeatedly referred to Meeker as the “Queen of the Internet.”
“A collection of markets gossip pervades the endless stream of news organization tidbits which are spread throughout,” Pollack wrote.
Not the Final Word
The decision leaves open the possibility that the suit can be refiled with new information, as long as that occurs within a month. An appeal is also an option for the plaintiffs.
While the ruling was aimed specifically at a single claim, brought by Mark S. Thomson, Morgan Stanley spokesman Bret Galloway said the investment banking giant believes the dismissal will affect a host of similar suits seeking to represent shareholders of several major Web companies.
“We’ve said consistently these complaints are nothing more than publicity stunts masquerading as lawsuits,” Galloway told the E-Commerce Times. “Our research is thorough and objective, regardless of the topic.”
Galloway said that Morgan Stanley lawyers believe the dismissal — which Pollack ordered on his own, not at the defendants’ request — applies to all related claims.
The strongly worded dismissal is a significant setback for the law firm that filed the complaint, Schiffrin & Barroway LLP of Bala Cynwyd, Pennsylvania, which was seeking to represent a class of plaintiffs in the position of the proposed lead plaintiff Thomson. The Schiffrin law firm has filed numerous class-action lawsuits alleging securities violations in connection with Internet-related stock offerings.
No ‘Chinese Wall’
The lawsuits, which began appearing in early August, claimed that Morgan Stanley improperly provided underwriting services to Amazon, eBay and AOL while Meeker was issuing positive recommendations to investors about them and other Internet stocks.
The suits charged that Morgan Stanley failed to adequately separate the two operations and that Meeker’s continued positive statements about the stocks reflected Morgan Stanley’s desire to retain the companies as clients, and were not based on the true outlook for the Internet firms.
Pollack found that the allegations made in the lawsuit were not sufficient to establish the basis for a case. In his three-page ruling, he described Thomson’s claim as “hopelessly redundant” and “argumentative,” and said it contains “much irrelevancy and inflammatory material.”
The judge also said the suits were to be expected, given the sharp rise and precipitious fall of the stock market during the past three years.
“They come during the inevitable sequel after market boom periods,” the court wrote.
The judge also compared the claims of forlorn investors — who have spawned a cottage industry of lawsuits against underwriters and dot-coms — to comments made by “gamblers in the world’s gaming pits depending on the season.”
One of Many
The suits against Morgan Stanley did not name any of the e-commerce firms as defendants. However, an earlier spate of suits has targeted a range of mid-sized e-tailers, including Webvan, eToys and Drugstore.com (Nasdaq: DSCM).
Those suits, which name both company executives and underwriters as defendants, claim that IPO prices were artificially inflated through a process known as “laddering,” in which underwriters agreed to buy shares at higher prices in exchange for increased commissions.