By Keith Regan E-Commerce Times
08/03/01 1:36 PM PT
With so many people losing money in the dot-com bust on Wall Street, it's no wonder
underwriters and stock analysts are being sued. But who is really to blame?
How Much is 'Free' Costing You? Learn how DaveRamsey.com saw a 567% uplift in ROI with Omniture. This complimentary guide and webinar cover the most important factors in selecting an analytics solution. Download Now.
From coast to coast, burned tech investors are being soothed. Like aloe on a sunburn, the
notion that it wasn't their fault is just the balm they've
been searching for since their nest eggs went splat.
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.
Note: The opinions expressed by our columnists are their own and do not necessarily reflect the views of the E-Commerce Times or its management.
Morgan Stanley Sued Over eBay and Amazon Dealings August 02, 2001
Though the shares of many of the companies Schiffrin & Barroway has targeted with its
lawsuits lost most or all of their value during the dot-com shakeout, eBay closed
Wednesday not too far below its 52-week high.
Webvan Slapped With Second Shareholder Lawsuit July 23, 2001
In addition to Webvan, laddering has been alleged in cases pending
against several other e-tailers over their IPOs, including Buy.com,
Drugstore.com, Expedia.com and Priceline.com.
Drugstore.com Sued By Shareholders June 28, 2001
Drugstore.com stock, which reached $70 on the day of its IPO,
has since fallen into the $1 range.
Shareholders Sue Priceline over IPO March 19, 2001
Investors are filing more shareholder lawsuits in
the wake of the Nasdaq collapse, during which many tech stocks have lost more than 90 percent
of their value.
More by Keith Regan
Yahoo Slaps Fresh Coat of Gloss on Microsoft Deal Defense June 30, 2008
With its shareholders meeting set to take place in less than five weeks, Yahoo has put together a 32-page presentation, emphasizing why the investors should vote to keep the current board in place. The company also reiterated why it chose to partner with Google instead of letting Microsoft buy part of it.
French Court Stings eBay With $63M Judgment Over Knockoff Sales June 30, 2008
eBay is planning to appeal a ruling by a French court that ordered it to pay $63 million to the luxury goods maker Louis Vuitton Moet Hennessey. The court also barred the online auctioneer from selling four brands of perfume on its Web sites accessible in France.
New Auto Loan Leads Marketplace Shifts Into Drive June 30, 2008
Reply.com's move into the auto finance market is a logical one the company, as automotive advertising spending is moving online in increasingly greater amounts. The company is partnering with the Detroit Trading Company to create a massive repository of auto finance leads online.