Tech Investor Search for Villains Hits Pay Dirt

Finally, they can chat openly about their Internet stocks at cocktail parties without being embarrassed. They can admit, that yes, I too bought stock in that dot-com. It's OK, now. Because, you see, it wasn't their fault.

They were tricked, it turns out. It was nothing short of black magic, sleight of hand by those sneaky underwriters and their evil assistants, the analysts.

If only that one extra sentence had been in the prospectus, they never would have taken that risk. If only they knew which analysts had bought stock, they would have backed off.

Yeah, right. Of course, we'll never know exactly what would have happened if all of the pertinent information was available to investors. But we can make some educated guesses.

Easy Rider

The lawsuits against various dot-coms and, increasingly, their underwriters and the analysts who work for the underwriters, all hinge upon the notion that information was left out of those prospectuses, the thick, dense documents full of legalese and repetition.

The idea is that by not disclosing that brokerages were agreeing to buy shares at above the IPO price, investors were tricked into going along for the ride.

Now, any such side deals certainly should have been revealed. But even if they were in the prospectus, it wouldn't have mattered to the average investor.

Time Machine

Think back. It's not easy, I know, to remember what it was like to be in the grips of Internet stock fever, but try. People who previously thought the Nasdaq was a South American soccer league were suddenly buying stocks. You couldn't walk to the corner store without a neighbor, friend or co-worker assaulting you with a stock tip that couldn't miss.

And many didn't miss, at least short-term. We all knew someone who had made a killing. The urge to believe that there but for a little risk-taking went us was irresistible.

Remember this, too: It all happened at the speed of light. We were in a new economy, one where stock trades could happen as fast as you could click a mouse. Did anyone really read the prospectus all the way through before buying their stocks?

Maybe some did. But I'd put it at a tiny minority. Yes, these documents are awful if not impossible to read for the layperson. The prospectus for one company hoping to go public soon, Omnicell, is more than 300 pages long, including attachments. Since the original prospectus was filed, a half-dozen amendments have been added.

Circle of Friends

Keeping up with that is a tall order. And doing it at digital speed is an even taller one. So it's natural for investors to rely on analysts, to rely on the buzz.

Natural, but not right. Trust is one thing, but blind trust another. Maybe there was an assumption that all analysts were unbiased and all underwriters taking a step back after the IPO. But based on what?

Blind faith. And the blindness, of course, came from greed. Dollar signs made everyone dizzy for a while. Only when our heads stopped spinning did we look around to see the carnage.

And then, because it's human nature, because it's the American way, the search for a scapegoat began. Analysts have been -- rightly so in many cases -- lambasted. Underwriters and dot-com executives have been sued.

Paper Tiger

It all sounds good on paper. But does anyone really think Drugstore.com (Nasdaq: DSCM), to take a random example, has any money to pay investors back for their losses?

So the underwriters and investment banks move into the crosshairs. If anyone has pockets deep enough to make the pain go away, it's them.

If it makes investors feel better to lay blame, they are free to do it. It will be a messy process, though, and one that will drag on for years and cost everyone lots of money. And in the end, will there really be any winners?

It'd be a lot easier and faster if we all took a deep breath, accepted our share of the responsibility for our stock portfolios, and tried, finally, to move on.

What do you think? Let's talk about it.