Goldman Sachs sued for 'dodgy' IPO

Internet toy-seller EToys has filed a lawsuit against Goldman Sachs for allegedly under-pricing its 1999 initial public offering.

EToys said Goldman Sachs undervalued its stock so it could receive massive kickbacks from customers when shares in the company quadrupled on its first day of trading.

Goldman Sachs priced Etoys' shares at $20 each, then watched as they soared to a close of $76.56 per share, following a first-day high of $85.

EToys is suing Goldman Sachs for fraud and breach of contract and fiduciary duty following a year-long investigation into the IPO.

The e-tailer stated that it may never have had to file for bankruptcy in March 2001 if Goldman Sachs had played fairly.

Shortly after its filing for bankruptcy protection, EToys sold its trademark, logos, software and other assets to KB Toys for $14m.

This is the first prosecution against an investment bank regarding an IPO indiscretion from a company rather than an individual.

EToys shares currently trade for less than a penny each on the Pink Sheets stock exchange.