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IN RE INITIAL PUBLIC OFFERING SECURITIES LITIGATION

October 13, 2004.

IN RE: INITIAL PUBLIC OFFERING SECURITIES LITIGATION. This Document Relates to: IN RE CORVIS CORP. INITIAL PUBLIC OFFERING SECURITIES LITIGATION. IN RE ENGAGE TECHNOLOGIES, INC. INITIAL PUBLIC OFFERING SECURITIES LITIGATION. IN RE FIREPOND, INC. INITIAL PUBLIC OFFERING SECURITIES LITIGATION. IN RE iXL ENTERPRISES, INC. INITIAL PUBLIC OFFERING SECURITIES LITIGATION. IN RE SYCAMORE NETWORKS, INC. INITIAL PUBLIC OFFERING SECURITIES LITIGATION. IN RE VA LINUX CORP., formerly known as VA LINUX SYSTEMS, INC. INITIAL PUBLIC OFFERING SECURITIES LITIGATION.


The opinion of the court was delivered by: SHIRA SCHEINDLIN, District Judge

OPINION AND ORDER

I. INTRODUCTION

Between January 11 and December 6, 2001, thousands of investors filed class action lawsuits, alleging that 55 underwriters, 310 issuers and hundreds of individuals associated with those issuers had engaged in a sophisticated scheme to defraud the investing public. In brief, the scheme consisted of a requirement, imposed by the underwriters, that IPO allocants purchase shares in the aftermarket, often at escalating prices, and pay undisclosed compensation. In addition, the underwriters prepared analyst reports that contained inaccurate information and recommendations because the analysts operated under a conflict of interest. As a result of the scheme, plaintiffs allege that they collectively lost billions of dollars. These actions were consolidated before this Court for pre-trial supervision. At the suggestion of the Court, the parties selected six cases to be used as test cases for determining whether these suits can proceed as class actions. Upon plaintiffs' motion, I now address whether these test cases can be certified as class actions.

  Defendants have submitted thousands of pages of briefs, affidavits, exhibits and reports in opposition to the motion. Although they raise every conceivable argument, their major contention is that individual issues predominate over common issues with respect to almost every aspect of proof. In particular, defendants note that each plaintiff differs with respect to her knowledge of the alleged scheme when she invested (e.g., whether she was an allocant or an aftermarket purchaser or both and whether and to what extent she was exposed to press reports and other public disclosures); the nature of her investment (e.g., whether she was a long term investor, a short seller, a day trader, or a momentum trader); the timing of her investment (e.g., the purchase price of the stock and the effect of any artificial inflation at the time of purchase); the amount of her damages (e.g., the subsequent dissipation of any artificial inflation by the time of sale); and the traceability of her shares to a particular offering and registration statement. Because of these differences, defendants argue, common issues cannot predominate, and class certification must be denied. Defendants also contend that it would be impossible to ascertain which investors should be in the class and which must be excluded.

  In their zeal to defeat the motion for class certification, defendants have launched such a broad attack that accepting their arguments would sound the death knell of securities class actions. Yet class-wide adjudication under Rule 23 of the Federal Rules of Civil Procedure is particularly well-suited to securities fraud cases.*fn1 In opposing certification, defendants do not truly seek separate adjudications of each individual claim. In reality, they seek no adjudication because the prospect of 310 million individual lawsuits (based on a hypothetical average class membership of one million investors), represents an impossible burden for all parties — the individual plaintiffs, the defendants and the courts.*fn2 Thus, if certification is denied, defendants will have essentially defeated the claims without ever having been compelled to defend the suits on the merits. Of course, if plaintiffs fail to satisfy the stringent requirements of Rule 23, then a class cannot be certified, even if that results in plaintiffs' inability to press their claims.*fn3

  "The class action device was designed to promote judicial efficiency and to provide aggrieved persons a remedy when individual litigation is economically unrealistic, as well as to protect the interests of absentee class members."*fn4 This underlying purpose of Rule 23 provides much-needed guidance in focusing on the real issues. While highly competent counsel, with unlimited resources, have the capability to advance an almost unlimited array of complex arguments against certification, the Court must not lose sight of the ultimate question: whether class adjudication of the issues raised in these complaints is clearly superior to any other form of dispute resolution. Although defendants' arguments have raised a number of thorny problems, forcing this Court to take a hard look at the pleadings and the many submissions made in support of and in opposition to this motion, the balance tips strongly in favor of certification. Trying these cases will be an arduous task, but that is no reason to close the courthouse door to the alleged victims of a sophisticated and widespread fraudulent scheme. Accordingly, for the reasons set forth below, class certification, to the extent noted, is granted in each of the six focus cases.

  II. FACTS

  A. The Alleged Scheme

  Plaintiffs seek recovery for securities fraud pursuant to the Securities Act of 1933 (the "Securities Act") and the Securities Exchange Act of 1934 (the "Exchange Act"). Plaintiffs allege that defendants engaged in a comprehensive scheme to defraud investors by artificially inflating the prices of the issuers' stocks. The alleged scheme is described at length in my February 19, 2003 Opinion denying defendants' motion to dismiss.*fn5 Familiarity with that Opinion is assumed.

  B. The Focus Cases

  These proceedings sweep together for pre-trial management 310 consolidated class actions, each with a distinct group of defendants (many of whom are overlapping) but alleging the same scheme to defraud investors. Because the question of whether a class can be certified under the rigorous standard set forth by Rule 23 is common to all of these consolidated actions, judicial efficiency counsels in favor of a test case approach. Accordingly, the parties have presented for the Court's consideration six cases, involving the following issuers: Corvis Corp. ("Corvis"); Engage Technologies, Inc. ("Engage"); Firepond, Inc. ("Firepond"); iXL Enterprises, Inc. ("iXL"); Sycamore Networks, Inc. ("Sycamore"); and VA Software Corp, formerly known as VA Linux Systems, Inc. ("VA Linux") (collectively, the "focus cases").*fn6

  The parties have agreed that "[t]he rulings on the class certification motions in the selected cases will govern those cases only."*fn7 However, most of the issues this Opinion addresses would undoubtedly be raised in a motion for class certification with respect to the remaining 304 consolidated actions. This Opinion is intended to provide strong guidance, if not dispositive effect, to all parties when considering class certification in the remaining actions.*fn8

  C. The Parties' Submissions

  On September 2, 2003, plaintiffs moved for class certification and submitted Plaintiffs' Memorandum of Law in Support of Their Omnibus Motion for Class Certification ("Plaintiffs' Omnibus Mem."). Defendants responded with six opposition briefs: the Underwriter Defendants' Memorandum in Opposition to Plaintiffs' Motion for Class Certification in Corvis ("Corvis Mem."); the Memorandum in Opposition to Omnibus Motion for Class Certification, and to Certification of the Proposed Class in Engage Technologies, Inc. ("Engage Mem."); the Underwriter Defendants' Memorandum of Law in Opposition to Plaintiffs' Motion for Class Certification in Firepond ("Firepond Mem."); the iXL Underwriter Defendants' Memorandum in Opposition to Plaintiffs' Motion for Class Certification ("iXL Mem."); the Underwriter Defendants' Opposition to Plaintiffs' Motion for Class Certification in Sycamore ("Sycamore Mem."); and Credit Suisse First Boston ("CSFB") LLC's Memorandum in Opposition to Plaintiffs' Motion for Class Certification in VA Linux ("VA Linux Mem.").*fn9 Plaintiffs replied on April 19, 2004, with Plaintiffs' Corrected Reply Memorandum of Law in Support of Their Omnibus Motion for Class Certification ("Plaintiffs' Reply"). Defendants responded on May 10, 2004, with the Underwriter Defendants' Sur-Reply Memorandum in Opposition to Plaintiffs' Motion for Class Certification ("Defendants' Sur-Reply"), and plaintiffs submitted Plaintiffs' Response to Underwriter Defendants' Sur-Reply Memorandum in Opposition to Class Certification ("Plaintiffs' Response") on May 19, 2004.

  After oral argument on June 17, 2004, I directed plaintiffs to submit a letter brief refining their proposed class definition, which plaintiffs submitted on July 6, 2004 ("Class Def. Letter"). Defendants responded to the proposed definition on July 20, 2004, in a letter brief of their own ("Class Def. Opp."). Finally, on September 7, 2004, I ordered plaintiffs to submit a proposed trial plan, which plaintiffs submitted on September 15, 2004 ("Trial Plan"). Defendants opposed the Trial Plan in a letter brief dated September 22, 2004, and plaintiffs replied on September 28, 2004.

  The parties have also submitted many expert reports regarding the hotly contested issues of loss causation and damages. Plaintiffs submitted an expert report by Professor Daniel Fischel on January 20, 2004 ("1/20/04 Fischel Report"). Defendants countered with reports by the following experts: Dr. Christopher B. Barry in support of iXL Mem. ("Barry Report"); Dr. Paul A. Gompers in support of Sycamore Mem. ("Gompers Report"); Dr. Allan W. Kleidon in support of Sycamore Mem. ("Kleidon Report"); Dr Maureen O'Hara in support of Corvis Mem. and VA Linux Mem. ("2/23/04 O'Hara Report"); Dr. Erik R. Sirri in support of iXL Mem. ("Sirri Report"); and Dr. René M. Stultz in support of Firepond Mem. ("Stultz Report").*fn10 Plaintiffs submitted a rebuttal report by Professor Fischel dated April 15, 2004 ("4/15/04 Fischel Report"). Defendants countered with a report by Dr. Bradford Cornell, dated May 10, 2004 ("Cornell Report"). In my June 21, 2004 Order, I directed plaintiffs to "submit a supplemental report from [] Fischel in which he analyzes the causal link between the alleged tie-in agreements and their effect on stock price in light of all tie-in purchases in the six focus cases known to plaintiffs' counsel (both in the form of aftermarket trades and pre-opening bids-and-asks). [] Fischel is advised to pay particular attention to the duration of any inflationary effect caused by this activity."*fn11 Plaintiffs submitted a final Fischel report on July 12, 2004 ("7/12/04 Fischel Report"), and defendants countered with a report from Dr. O'Hara dated July 23, 2004 (the "7/23/04 O'Hara Report").

  D. The Proposed Class Periods

  For each of these consolidated actions, "[t]he Class consists of all persons and entities that purchased or otherwise acquired the securities of [Specific Issuer] during the Class Period and were damaged thereby," subject to various exclusions.*fn12 Plaintiffs propose class periods for each case that span the period between the initial public offering ("IPO") and December 6, 2000.*fn13 For the purposes of this Opinion, plaintiffs' proposed class periods are adopted for plaintiffs' Exchange Act claims; however, plaintiffs' proposed class periods must be shortened with respect to plaintiffs' claims pursuant to section 11 of the Securities Act in each of the six focus cases.*fn14

  E. Focus Case-Specific Facts

  1. Corvis

  a. The Corvis IPO

  Corvis held its IPO on July 28, 2000, with CSFB serving as the lead underwriter, offering 31,625,000 shares at $36.00 per share.*fn15 Defendants note that "[p]rior to the IPO, Corvis had issued a significant number of unregistered shares . . . which would have been freely tradeable at the time of the IPO, provided that the shareholders satisfied SEC Rule 144."*fn16 Corvis reported a number of outstanding unregistered shares of stock that had been issued to other companies and to Corvis affiliates before the Corvis IPO.*fn17 On the first day of trading, the stock opened at $74.00, peaked at $98.00 and closed at $84.72, a 135% increase over the offering price.*fn18 By the end of the first day of trading, 28,137,100 shares had changed hands in 35,755 transactions.*fn19

  Plaintiffs allege that 195 of the institutional allocants in the Corvis IPO, to whom 12,193,450 shares were allocated, entered into tie-in agreements with the allocating underwriter.*fn20 Plaintiffs further allege that purchase orders from these allocants accounted for 1,469,600 of the 2,569,600 purchase orders placed during the pre-open bid session, during which the opening share price rose to more than twice the $36.00 offering price.*fn21 During the ten business days from July 28 through August 10, 2000, Corvis allocants purchased a total of 11,582,004 shares in the aftermarket. The same investors sold a total of 1,543,240 shares during that time.*fn22

  Following the IPO, Corvis's stock climbed to its highest price, $108.06 per share, on August 4, 2000, the same day Broadwing disclosed a $44,000,000 investment position in Corvis and announced that it would buy $200,000,000 in equipment.*fn23 By the end of September 2000, the stock had fallen to just over $60.00 per share.*fn24 On October 2, 2000, Corvis filed a prospectus for 2,446,074 newly registered shares acquired through the exercise of employee stock options.*fn25 Corvis explicitly incorporated the disclosures made in its IPO prospectus into its October 2, 2000 prospectus.*fn26 During November 2000, the stock slid from $64.00 to $28.81 per share.*fn27 Corvis experienced a slight rebound in December 2000, reaching $40.38 per share on December 6.*fn28 According to Professor Fischel, Corvis underperformed when compared to various market benchmarks by 27 to 64 percentage points from July 28 to December 6, 2000, and by 35 to 67 points thereafter.*fn29 On May 10, 2001, when the first Corvis case, PRFT Partners v. Corvis Corp., No. 01 Civ. 3994, was filed, shares of Corvis closed at $7.380 per share.*fn30

  b. Corvis Class Representatives*fn31 (1) Satswana Basu

  Satswana Basu, who also seeks to act as a class representative in six other IPO cases, purchased and sold 95,198 Corvis shares, and sold and covered short 20,000 Corvis shares between November 17 and December 6, 2000, resulting in a $736,869.20 loss during that time. Basu also purchased Corvis shares after December 6, 2000.*fn32

  (2) Michael Huff

  Between August 24 and September 26, 2000, Michael Huff bought and sold 12,000 shares of Corvis stock for a $22,755.00 profit. On September 28 and 29, 2000, however, Huff purchased a total of 6,000 shares for $472,832.50, which he had not sold as of December 6, 2000. Had he sold the shares that day, when the stock closed at $40.38 per share, Huff would have suffered a total pre-December 6, 2000 loss of $207,797.50.*fn33

  (3) Sean Rooney

  Sean Rooney purchased 1,000 shares of Corvis stock on August 7, 2000 at $107.50 per share and another 500 shares on August 11, 2000 at $90.00 per share. Rooney sold 500 shares on December 5, 2000, at $39.00 per share, leaving him with 1,000 unsold shares on December 6, 2000. Had he sold his shares that day, when the stock closed at $40.38 per share, he would have suffered a total pre-December 6, 2000 loss of $92,620.00.*fn34 Rooney also received an allocation of 500 shares in the Priceline.com IPO.*fn35

  2. Engage

  a. The Engage IPO

  Engage held its IPO on July 20, 1999, with Goldman Sachs acting as lead underwriter, offering 6,938,000 shares at $15.00 per share.*fn36 The IPO prospectus for Engage notes that 1,225,324 shares of common stock were already outstanding well before the IPO, on April 30, 1999.*fn37 On the first day of trading, the stock opened at $28.00, peaked at $47.00 and closed at $41.00, a 173% increase over its offering price. By the end of the first day of trading, 14,887,200 shares had changed hands.*fn38

  Plaintiffs allege that forty-nine of the institutional allocants in the Engage IPO, to whom 786,900 shares were allocated, entered into tie-in agreements with the allocating underwriter.*fn39 Plaintiffs further allege that purchase orders from these allocants made up 693,000 of the 1,251,000 total purchase orders placed during the pre-open bidding session, during which the opening price for Engage was set at $28.00, $13.00 above the offering price.*fn40 During the ten business days from July 20, 1999 through August 2, 1999, Engage allocants purchased a total of 3,313,660 shares in the aftermarket.*fn41 The same investors sold a total of 135,850 shares during that time.*fn42

  Following the IPO, the price for Engage stock fell, but the stock traded consistently in the mid-twenties through the end of 1999.*fn43 On January 16, 2000, approximately 6,700,000 non-IPO shares associated with "employee stock options, corporate acquisitions, and other transactions became freely tradable in large numbers in the secondary market."*fn44 From January to February 2000, Engage prices climbed to all-time highs, peaking at over $180.00 per share.*fn45 The price declined rapidly in March and April of 2000, and the stock split two for one on April 4, 2000.*fn46 By August 2000, the stock was trading around the offering price of $15.00 per share when adjusted to reflect the split. The price dropped below the offering price for the first time in October 2000, and continued to decline through December 6, 2000, when it was trading at a split-adjusted price of approximately $3.19 per share.*fn47 Fischel asserts that Engage underperformed when compared to various market benchmarks by 35 to 72 percentage points from July 20, 1999 to December 6, 2000, and by 34 to 68 points thereafter.*fn48 On September 7, 2001, when the first Engage case, Chin v. Engage Tech., Inc., No. 01 Civ. 8404, was filed, Engage stock closed at $0.190 per share.*fn49

  b. Engage Class Representatives

  (1) Stathis Pappas

  Stathis Pappas was an allocant in Engage's IPO, receiving 100 shares of Engage stock on July 20, 1999, at $15.00 per share.*fn50 Pappas made no aftermarket purchases in Engage. It does not appear from the facts before this Court that Pappas ever sold any of those shares, which were worth approximately $3.19 per share on December 6, 2000.*fn51 Had he sold his shares that day, he would have suffered a $1,181.26 loss on the transaction. According to defendants, Pappas is a member of more than fifteen potential classes in these consolidated actions.*fn52

  (2) Krikor Kasbarian

  Between March 31 and August 29, 2000, Krikor Kasbarian purchased 20,000 shares of Engage stock for $1,008,687.50 and sold 30,000 post-split shares for $411,450.00, resulting in a total pre-December 6, 2000 loss of $597,237.50.*fn53 On his October 8, 2001 PSLRA certification, Kasbarian failed to disclose several transactions.*fn54 In October, 2000, Kasbarian destroyed records documenting his Engage trades.*fn55 He held no Engage stock on December 6, 2000.*fn56

  Kasbarian engaged in six transactions involving Engage after December 6, 2000. In July 2001, Kasbarian bought Engage twice and sold twice, each sale within a few days of the respective purchase. Kasbarian made a profit of $.06 per share on the first set of trades and broke even on the second set.*fn57 Kasbarian failed to disclose these trades on his PSLRA certification.*fn58 Following submission of the certification, Kasbarian made a final pair of trades in Engage stock, purchasing 4,000 shares on October 25, 2001, and selling those shares for a $.03 profit per share on October 30, 2001.*fn59 According to defendants, Kasbarian is also a member of more than fifteen potential classes in these consolidated actions and seeks to serve as a class representative in the TheGlobe.com litigation.*fn60

  3. Firepond

  a. The Firepond IPO

  Firepond held its IPO on February 4, 2000, with Robertson Stephens acting as lead underwriter, offering approximately 5,000,000 shares at $22.00 per share.*fn61 On that date, 27,751,713 unregistered shares were already outstanding.*fn62 On the first day of trading, Firepond's stock opened at $52.00, peaked at $102.31 and closed at $100.25, an increase of 356% over its offering price. By the end of the first day of trading, 9,284,900 shares had changed hands.*fn63 Plaintiffs allege that 152 of the institutional allocants in the Firepond IPO, to whom 3,153,100 shares were allocated, entered into tie-in agreements with the allocating underwriter.*fn64 Plaintiffs further allege that purchase orders from these allocants made up 3,965,100 of the 4,125,100 million total purchase orders placed during the pre-open bidding session, during which the opening price for Firepond rose to $30.00 above the offering price.*fn65 During the ten business days from February 4 through February 17, 2000, Firepond allocants purchased a total of 13,970,988 shares in the aftermarket. The same investors sold a total of 12,611,116 shares during that time.*fn66

  Following the IPO, Firepond's stock fell slightly, closing at $71.00 on February 17, 2000. The price then rebounded, reaching a high of $97.44 on February 29, only to rapidly decline to $15.88 by April 17.*fn67 Defendants claim that the number of outstanding shares increased by nearly 2,000,000 between the IPO and April 30, 2000.*fn68 The stock once again rebounded, peaking at $40.69 on June 29, 2000, but soon resumed its decline, trading in the upper teens again by August 1.*fn69 On August 2, 2000, Firepond's 180-day lock-up expired, and more than 26,000,000 shares became tradeable.*fn70 The price of the stock began to fall dramatically in the fall of 2000, declining from over $17.00 a share on September 14 to a closing price of $6.69 on December 6, 2000.*fn71 Fischel asserts that Firepond underperformed when compared to various market benchmarks by 27 to 63 percentage points from February 4, 2000 to December 6, 2000, and 33 to 65 points thereafter.*fn72 On July 31, 2001, when the first Firepond case, Barrett v. FirePond, Inc., No. 01 Civ. 7048, was filed, Firepond closed at $0.66.*fn73

  b. Firepond Class Representatives

  (1) Zitto Investments

  Zitto Investments ("Zitto") purchased 345 shares of Firepond stock between February and April of 2000. It sold 100 shares in February for a profit but sold 245 shares in August 2000 for less than $20.00 per share, resulting in a net loss of $7,258.75.*fn74

  (2) James and Diane Collins

  James and Diane Collins ("the Collinses") made four purchases of Firepond stock between March 14 and May 1, 2000, totaling 500 shares for $24,300.00. The Collinses had not sold any shares of Firepond stock prior to December 6, 2000, when the stock closed at $6.69 per share.*fn75 Had the Collinses sold their shares that day, they would have suffered a $20,955.00 loss on the transaction.

  (3) Joseph Zhen

  Between February 11 and March 17, 2000, Joseph Zhen purchased 2,600 Firepond shares for $192,956.25 and sold 1,600 shares for $126,725.00, resulting in a gain of $7,982.69. Zhen still held 1,000 shares when the price dropped dramatically in late March. He sold his remaining shares on April 17, 2000 for $16,093.80, bringing his total pre-December 6, 2000 loss to $50,137.45.*fn76 Zhen omitted thirteen of his seventeen Firepond trades, some of which resulted in profits, from his September 20, 2001 PSLRA certification.*fn77 During discovery, Zhen failed to produce trading records for transactions in securities other than Firepond.*fn78

  4. iXL

  a. The iXL IPO

  iXL held its IPO on June 2, 1999, with Merrill Lynch serving as lead underwriter, offering close to 7,000,000 shares at $12.00 per share.*fn79 The iXL IPO Prospectus notes that "no restricted securities will be eligible for immediate sale on the date of this prospectus," and that "121,828 restricted securities issuable pursuant to stock options will be eligible for sale 90 days after the date of this prospectus [on August 31, 1999.]"*fn80 During the first day of trading, the stock opened at $15.13, peaked at $24.50 and closed at $17.88, an increase of 49% above the offering price. On the first day of trading, 14,008,117 shares changed hands.*fn81

  Plaintiffs allege that thirty-seven of the institutional allocants in the iXL IPO, to whom 1,222,750 shares were allocated, entered into tie-in agreements with the allocating underwriter.*fn82 During the ten business days from June 3 through June 16, 1999, iXL allocants purchased a total of 3,080,089 shares in the aftermarket. The same investors sold a total of 2,956,325 shares during that time.*fn83

  In the weeks following the iXL IPO, the share price rose slightly, closing at $19.13 on June 28, 1999.*fn84 That day, 4,000,000 shares were registered with the SEC for use in future acquisitions.*fn85 A month later, on July 27, 1999, iXL issued a positive earnings announcement,*fn86 and Merrill Lynch upgraded the stock from near-term "accumulate/buy" to near-term "buy/buy."*fn87 The following day, shares closed at $29.13. In August 1999, the price dropped to $22.00. Shares rebounded to $37.00 in mid-November and, on January 20, 2000, the price reached $58.75, the stock's high-water mark.*fn88

  In February 2000, more than 50,000,000 shares became tradeable due to the expiration of a lock-up that had taken effect shortly after the IPO.*fn89 Between mid-February and late June, 2,400,000 shares that had been subject to lock-up agreements were sold.*fn90 On February 18, 2000, Merrill downgraded iXL to "accumulate" and warned of the risk of sales of unlocked shares.*fn91 Merrill re-classified its long-term rating to "buy" on March 20, 2000.*fn92 In September 2000, Merrill downgraded iXL first to "accumulate"*fn93 and then to "neutral."*fn94 The price of iXL shares closed at $1.25 on December 6, 2000.*fn95 Fischel asserts that iXL underperformed when compared to various market benchmarks by 63 to 99 percentage points from June 2, 1999 to December 6, 2000, and by 36 to 62 points thereafter.*fn96 On October 25, 2001, when the first iXL case, Turner v. iXL Enterprises, Inc., No. 01 Civ. 9417, was filed, iXL closed at $0.32 per share.*fn97

  b. iXL Class Representatives

  (1) John Miles

  Between August 19, 1999 and November 2, 2000, John Miles purchased 16,400 iXL shares for $138,233.41. Miles sold 2,400 shares by August 16, 2000 for $53,452.04, but still held 14,000 shares as of December 6, 2000.*fn98 Had he sold his remaining shares that day, when the stock closed at $1.25 per share, he would have suffered a total pre-December 6, 2000 loss of $67,281.37. (2) John Rowe

  Between June 4 and August 31, 1999, John Rowe purchased 1,335 iXL shares for $25,685.23. He sold 335 shares between September 17 and November 22, 1999 for $12,029.82, at a profit, leaving him with 1,000 unsold shares as of December 6, 2000.*fn99 Had he sold his remaining shares that day, when the stock closed at $1.25 per share, Rowe would have suffered a total pre-December 6, 2000 loss of $12,405.41.

  5. Sycamore

  a. The Sycamore IPO

  Sycamore held its IPO on October 21, 1999, with Morgan Stanley acting as the co-lead underwriter, offering 7,475,000 shares at $38.00 per share.*fn100 On the first day of trading, Sycamore shares opened at $270.88, the day's high price, and closed at $184.75, an increase of 386% above the offering price. Almost 10,000,000 shares changed hands on the first day of trading.*fn101 Plaintiffs allege that eighty-seven institutional allocants in the Sycamore IPO, to whom 1,077,625 shares were allocated, entered into tie-in agreements with the allocating underwriter.*fn102 Plaintiffs further allege that purchase orders from these allocants made up 561,900 of the 2,868,035 total purchase orders placed during the pre-open bidding session, during which the opening price for Sycamore rose to $232.88 above the offering price.*fn103 During the first ten days following Sycamore's IPO, Sycamore allocants purchased a total of 2,297,115 shares. The same investors sold a total of 745,832 shares during that time.*fn104

  Defendants assert that on the first day of public trading, 5,734,183 previously issued non-IPO Sycamore shares were not subject to lock-up.*fn105 At least 368,587 of these shares became tradeable 90 days after the Sycamore IPO — i.e., on January 19, 2000.*fn106 Following the IPO, the price of Sycamore stock climbed steadily, closing at $203.00 on October 26, 1999.*fn107 On January 19, 2000, millions of additional shares that had been issued prior to the Sycamore IPO were released from lock-up,*fn108 and by the end of that week, the stock price reached $280.00.*fn109 The stock split three for one on February 14, 2000.*fn110 On March 2, 2000, the stock soared to a price of $569.81 per share,*fn111 and the next day 8,985,186 more shares, issued one year earlier, were released from lock-up.*fn112 A secondary offering of 10,200,000 Sycamore shares occurred on March 14, 2000.*fn113 On April 18, 2000, 26,965,355 additional shares were released from lock-up.*fn114 After rising and falling several times, the stock price eventually declined, trading around $300.00 per share in October of 2000, and closing at a split-adjusted price of $169.31 per share on December 6, 2000.*fn115 Fischel asserts that Sycamore underperformed when compared to various market benchmarks by 32 to 68 percentage points from October 21, 1999 to December 6, 2000, and by 32 to 64 points thereafter.*fn116 On July 2, 2001, when the first Sycamore case, Pond Equities v. Sycamore Networks, Inc., No. 01 Civ. 6001, was filed, Sycamore closed at $8.63 per share.*fn117

  b. Sycamore Class Representatives

  (1) Barry Lemberg

  Barry Lemberg purchased 100 Sycamore shares for $175.00 per share on March 3 and an additional 100 shares on April 13, 2000 for $71.13 per share.*fn118 Lemberg had not sold those shares as of December 6, 2000, when the stock closed at $56.44 per share.*fn119 Had Lemberg sold the shares that day, he would have suffered a $13,325.00 loss on the transaction. While Lemberg alleges that he is entitled to damages relating to 1,200 shares, he purchased only 200 shares before December 6, 2000.*fn120

  Lemberg's testimony and questionnaire responses conflict as to whether he received an IPO allocation,*fn121 and although Lemberg alleged that he had never personally bought and sold the same stock on the same day, the record reveals that he had conducted a same day transaction on at least one occasion.*fn122 He testified that he does not remember having any involvement in preparing the Complaint.*fn123 Moreover, defendants claim that he "does not ...


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