Joe Nocera in the Times last Sunday unearthed some Goldman
emails about the eToys IPO from the dotcom era. eToys raised $164 million
in a 1999 IPO and then subsequently failed. The story is familiar by now.
The IPO was underpriced and Goldman spun shares off to preferred clients.
After the company failed, creditors sued. It's emails produced in
connection with that suit that Nocera uncovered. The emails and creditors
raise an important question: who was Goldman working for during the IPO?
The plaintiffs charge that Goldman Sachs had a fiduciary
duty to maximize eToys' take from the I.P.O. Instead, Goldman purposely set an
artificially low price, so that its real clients, the institutional investors
clamoring for the stock, could pocket that first-day run-up. According to the
suit, Goldman then demanded that some of those easy profits be kicked back to
the firm. Part of their evidence for the calculated underpricing of eToys,
according to the plaintiffs' complaint, was that Lawton Fitt, the Goldman
executive who headed the underwriting team and was thus best positioned to
gauge the market demand, actually made a bet with several of her colleagues
that the price would hit $80 at the opening.
If you are interested in learning more about this kind of
thing, Sean Griffith has a good
article on the practice of spinning in IPOs that appeared a couple of
years in the Brooklyn Law Review.
Visit the M&A Law Prof
Blog, hosted by Brian JM Quinn, for blogs on legal developments in
corporate governance and mergers & acquisitions.
For more information about LexisNexis
products and solutions connect with us through our corporate site.