NEW YORK, May 23, 2002 (PRIMEZONE) -- eToys Inc., now EBC I Inc., (Pink Sheets:ETYSQ) has charged Goldman Sachs & Co. with breaches of contract and fiduciary duty, fraud and other misconduct relating to Goldman's role as lead underwriter of eToys' May 20, 1999 Initial Public Offering. The lawsuit, filed in the Supreme Court of the State of New York, has been brought on behalf of EBC I Inc. by The Official Committee of Unsecured Creditors appointed in the Chapter 11 bankruptcy case. Stanley Grossman, of New York-based Pomerantz Haudek Block Grossman & Gross (pomlaw.com), co-counsel for the plaintiff, says that eToys incurred, "hundreds of millions of dollars in damages and eventually had to declare bankruptcy as a result of Goldman Sachs' illegal conduct in underpricing the IPO and in receiving kickbacks."
On Goldman Sachs' recommendation, the IPO was priced at $20 per share. Plaintiff charges that Goldman Sachs knew that a substantially higher price was warranted given the demand for the stock but intentionally underpriced the shares because Goldman had entered into unlawful arrangements with its customers who were obligated to kick back to Goldman a portion of any profits that they made on after market sales of eToys securities allocated to them on the IPO. On the first day of trading, over 13 million shares changed hands, with prices reaching over $85 per share, or more than four times the IPO price set by Goldman Sachs. The extraordinary demand for eToys' shares -- and the high price the public was willing to pay for them -- continued for many months after the IPO with approximately 300 million shares trading at prices as high as $86.
Bill Wachtel of Wachtel & Masyr, co-counsel for plaintiff, said that eToys had retained Goldman Sachs as lead underwriter and it relied upon its recommendation to price shares at $20 because of Goldman's vast experience and its claim for integrity and the highest of business ethics.
The New York law firm of Traub, Bonacquist & Fox represents the Committee of Creditors of EBC I Inc. in the Chapter 11 case and is special bankruptcy counsel to the plaintiff.