Lovell & Stewart Announces Securities Fraud Class Action Against Foundry Networks, Inc., Certain Officers, Investment Banks

Business Wire, Nov 27, 2001

Business & Legal Editors

NEW YORK--(BUSINESS WIRE)--Nov. 27, 2001

The following is an announcement by Lovell & Stewart, LLP:

The law firm of Lovell & Stewart, LLP ((212) 608-1900 or www.lovellstewart.com), acting on behalf of the Plaintiffs' Executive Committee appointed pursuant to Case Management Order No. 1 in In re: Initial Public Offering Securities Litigation, Docket No. 21-MC-92 (SAS), filed a class action lawsuit on November 26, 2001 on behalf of all persons and entities who purchased, converted, exchanged or otherwise acquired the common stock of Foundry Networks, Inc. (NasdaqNM:FDRY) between September 27, 1999 and December 6, 2000, inclusive. The lawsuit asserts claims under Section 11, 12 and 15 of the Securities Act of 1933 and Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated by the SEC thereunder and seeks to recover damages. Any member of the class may move the Court to be named lead plaintiff. If you wish to serve as lead plaintiff, you must move the Court no later than January 28, 2002.

The action, Kassin v. Foundry Networks, Inc., et al., is pending in the U.S. District Court for the Southern District of New York (500 Pearl Street, New York, New York), Docket No. 01-CV-10640 (SAS) and has been assigned to the Hon. Shira A. Scheindlin, U.S. District Judge. The complaint alleges that Foundry Networks and certain of its officers at the time of its IPO violated the federal securities laws by issuing and selling Foundry Networks common stock pursuant to the initial public offering without disclosing to investors that several of the underwriters of the IPO had solicited and received excessive and undisclosed commissions from certain investors.

In exchange for the excessive commissions, the complaint alleges, defendants Deutsche Bank Alex. Brown, Inc., Merrill Lynch, Pierce, Fenner & Smith, Inc., J. P. Morgan Chase & Co., FleetBoston Robertson Stephens, Inc., Donaldson, Lufkin & Jenrette Securities Corp., The Goldman Sachs Group, Inc., Chase H&Q (formerly known as Hambrecht & Quist LLC), and Lehman Brothers, Inc. allocated Foundry Networks shares to customers at the IPO price of $12.50 per share. To receive the allocations (i.e., the ability to purchase shares) at $12.50, the defendant underwriters' brokerage customers had to agree to purchase additional shares in the aftermarket at progressively higher prices. The requirement that customers make additional purchases at progressively higher prices as the price of Foundry Networks stock rocketed upward (a practice known on Wall Street as "laddering") was intended to (and did) drive Foundry's share price up to artificially high levels. This artificial price inflation, the complaint alleges, enabled both the defendant underwriters and their customers to reap enormous profits by buying Foundry Networks stock at the $12.50 IPO price and then selling it later for a profit at inflated aftermarket prices, which rose as high as $83.28 during its first day of trading.

Rather than allowing their customers to keep their profits from the IPO, the complaint alleges, the defendant underwriters required their customers to "kick back" some of their profits in the form of secret commissions. These secret commission payments were sometimes calculated after the fact based on how much profit each investor had made from his or her IPO stock allocation.

The complaint further alleges that defendants violated the Securities Act of 1933 because the Prospectus distributed to investors and the Registration Statement filed with the SEC in order to gain regulatory approval for the Foundry Networks offering contained material misstatements regarding the commissions that the defendant underwriters would derive from the IPO and failed to disclose the additional commissions and "laddering" scheme discussed above.

Investors who acquired Foundry Networks common stock during the period September 27, 1999 through December 6, 2000, inclusive may contact Lovell & Stewart at the telephone number, address or E-mail address below for more information regarding the class action lawsuit. Investors can also visit Lovell & Stewart's website at to view a copy of the complaint.