Grinding Wheels

There's an old saying that reminds us not to cry over spilled milk. But when people start to throw around billion-dollar settlement numbers for pending lawsuits, maybe it is worth crying over.

The issue at hand involves 309 class-action suits focused on 300 IPOs from companies including Global Crossing, Aether Systems, Copper Mountain Networks and VA Linux that took place between 1998 and 2000. One stipulation of a pending settlement between lawyers representing investors and the companies that issued the stock options guarantees that investors who suffered losses will share at least $1 billion in compensation.

MICHAEL VIZARD Can be reached at (516) 562-7477 or via e-mail at mvizard@cmp.com.

In the grand scheme of things, this is a small number. But as part of the settlement, executives at these companies also will provide evidence against investment bankers and venture capitalists that played a pivotal role in the creation of the Internet bubble. And the potential liability these investment firms face could stretch into billions of dollars.

The reason solution providers should watch these cases is because most Internet boom companies used their easy access to capital to bring products to market using a direct-sales-force model. If solution providers can make a case that they were materially harmed by these actions, the potential for civil suits is significant. Major vendors that spent millions of dollars building channels and companies that invested money to become part of that model most certainly were victimized.

Worse yet, some investment firms helped create shaky dot-coms that had their outlooks artificially inflated by tainted research. They then used the funds from related stock transactions to create another host of companies selling any number of technology products. Miraculously, most of those startups could cite a list of dot-coms as their first customers. Coincidentally, many shared the same investors as their customers. Some would even suggest there was a fair amount of collusion because many executives at these companies received preferential allocations of IPO shares from investment bankers. That process, known as spinning, is also being investigated by several regulatory bodies.

The wheels of justice may grind slowly. But for solution providers willing to be patient, the payback may ultimately prove sweet.

What's your opinion?I can be reached at (516) 562-7477 or via e-mail at mvizard@cmp.com.