Dec. 6 (Bloomberg) -- Melvyn Weiss, lead lawyer for investors suing Morgan Stanley, Credit Suisse Group and other banks for rigging initial public offerings, refused to settle the case for less than $12.5 billion, a lawyer said.

A federal appeals court yesterday refused to certify part of the case as a class-action, or group suit on behalf of millions of investors. The ruling means that investors who lost money must individually pursue the banks, making it far more difficult to press their claims or force a settlement.

The investors' case was led by a six-attorney executive committee, headed by Weiss. One committee member, Howard Sirota, said in an interview today that he pressed Weiss to accept a possible settlement of $3 billion or $4 billion, which, Sirota said, the banks appeared willing to pay. Weiss refused to consider anything less than $12.5 billion, Sirota said.

``I was desperately trying to salvage a settlement,'' said Sirota, of the New York-based firm of Sirota & Sirota. ``Literally millions of public investors have been deprived of any recovery because of what Milberg has done.''

Weiss is a name partner in the New York law firm of Milberg, Weiss, Bershad & Schulman. The firm was indicted in May, along with two of its name partners, Steven Schulman and David Bershad, for paying $11 million in improper kickbacks to investors to be lead plaintiffs in securities-fraud suits. Weiss wasn't charged.

Sirota said yesterday's ruling effectively ends the six- year-old IPO suit because it's no longer economically feasible for most lawyers to pursue the banks individually on behalf of investors. He estimated that the firms had spent more than $250 million in lawyers' time and expenses litigating the case.

`Not A Good Lawyer'

Weiss said in an interview today it would be unethical for him to comment on confidential settlement talks. He criticized Sirota, with whom he's previously clashed.

``He doesn't know what he's talking about because he's not a good lawyer,'' Weiss said.

Weiss said the plaintiffs in the case have several options, including a request that the appeals court reconsider its opinion and an appeal to the U.S. Supreme Court. He said he spent 2 ½ hours this morning briefing lawyers at his firm.

``There's a lot of ways we can go,'' Weiss said. ``For him to say we have no other options means he's not a lawyer thinking for his clients.''

Gandolfo DiBlasi, the lead lawyer for about 50 investment banks that were sued, declined to comment.

IPO

The IPO investors contend in their complaint that banks including Merrill Lynch & Co., Morgan Stanley, Credit Suisse and Goldman Sachs Group Inc. manipulated the market in 309 IPOs for technology companies that went public in the late 1990s. The banks deny the fraud allegations.

A three-judge appellate panel said the millions of investors ostensibly covered by the case didn't have enough in common to qualify for class status, in part because many knew or should have known of the alleged fraud when they bought IPO shares. The court said the proposed class is ``bristling with individual questions.''

Internet startups including Razorfish Inc. and Red Hat Inc. were also sued as part of the IPO case and have agreed to pay $1 billion to settle. JPMorgan Chase & Co., the No. 3 U.S. bank by assets, became the first bank to settle by agreeing in April to pay $425 million.

Sirota said he expects JPMorgan and the Internet start-ups to seek to escape the settlements, which have yet to be approved by U.S. District Judge Shira Scheindlin.

`Taint'

The banks are also defending a separate suit over the IPOs. That suit, which is pending in New York before a different judge, claims the banks participated in an industrywide scheme to rig initial public offerings. The banks have asked the U.S. Supreme Court to reverse a ruling allowing the case, alleging antitrust violations, to go forward.

Sirota said negotiations between lawyers for the banks and investors proceeded sporadically for well over a year. He said the banks never made a formal offer, though they hinted at possible settlement figures. He said DiBlasi, the banks' lawyer, wouldn't consider a $12.5 billion settlement, and that Weiss wouldn't entertain a lesser amount.

Earlier this week, Sirota said that Scheindlin should strip Milberg of its role as lead lawyer in the IPO lawsuit because the firm and the two partners had been indicted.

Today, Sirota said the ``taint'' of the criminal case against Weiss's firm worked to the disfavor of plaintiffs in the IPO case. Other lawyers on the committee sided with Weiss, Sirota said.

Sirota said he staked his small firm's future on the outcome of the IPO case and another lawsuit. With the possible failure of the IPO case, Sirota said his firm's days are numbered.

``We're going to close the firm,'' he said.

The case is In Re: Initial Public Offering Securities Litigation, 21-MC-92, U.S. District Court for the Southern District of New York (Manhattan).

To contact the reporter on this story: David Glovin in U.S. District Court in New York at dglovin@bloomberg.net.

Last Updated: December 6, 2006 18:49 EST