Sept. 8 (Bloomberg) -- Lawyers for investors who won a $586 million settlement from banks such as Morgan Stanley and Credit Suisse Group AG in a lawsuit over initial public offerings of technology stocks want $245 million for themselves.

The plaintiffs’ lawyers are seeking $195 million in fees and another $50 million in expenses, or about 42 percent of the settlement, according to a court filing today by an investor opposing a payment that large.

More than 50 underwriters have agreed to pay $586 million to settle claims stemming from the bursting of the Internet bubble in 2000, which led to lawsuits against 309 technology companies and the banks. U.S. District Judge Shira Scheindlin in Manhattan gave tentative approval to the accord in June and will hold a hearing on Sept. 10 to consider final approval and the request for legal fees.

“This court should not grant such a huge amount of money to class counsel,” says a legal brief by lawyer Edward Siegel, who represents seven investors in the class action, or group, lawsuit. “Counsels’ request is almost three times as much as the average” payment to lawyers in group lawsuits settling for more than $100 million, he said in a brief filed today.

At one time, plaintiffs’ lawyers led by Melvyn Weiss, who has since been jailed in an unrelated kickback scheme, demanded $12.5 billion to settle the case. The lesser settlement came amid the fiscal distress of the world’s investment banks following the credit-market collapse.

677,000 Hours

The cases stem from the boom and collapse of the technology-stock market in 2000. Investors in 309 companies that went public claimed underwriters including Bear Stearns Cos., Lehman Brothers Holdings Inc. and Merrill Lynch & Co. manipulated the IPO market for technology firms, whose value soared to record heights before collapsing. None of those three firms remain as independent investment banks.

Dozens of banks, including Goldman Sachs Group Inc. and other financial firms, denied wrongdoing.

According to Siegel, the plaintiffs’ lawyers have said they spent 677,000 hours working on the case, which is worth $278 million. Since the case settled for $586 million, the lawyers are seeking one-third of that amount, plus expenses.

Stanley Bernstein, the lead lawyer for the group of investors who brought the case, didn’t immediately return a call seeking comment.

Contingent Fee

According to an Aug. 25 legal filing by Bernstein, a team of 100 staffers from 30 different law firms spent eight years preparing 309 separate lawsuits, responding to numerous motions to dismiss by the banks, reviewing 30 million pages of documents, questioning at least 145 witnesses, engaging in intensive pretrial motion practice, meeting with many experts and negotiating a resolution.

“These are but a few of the tasks performed by plaintiffs’ counsel,” Bernstein wrote, adding that the lawyers were working “on a strictly contingent-fee basis,” with the expectation that “they would share in the recovery” if they won a settlement.

“The overall length, breadth, and enormous complexity of the cases are unprecedented in the annals of securities class actions and presented serious risks,” Bernstein wrote.

According to settlement papers, lawyers for investors have notified more than 7 million individuals or entities who may be entitled to share in the settlement. So far, 85,000 claims by investors have been submitted in response. No investor will receive less than $10, the papers say.

‘Excessive’

In his brief, Siegel says the legal fees sought are “excessive under any accepted formula” for determining legal costs. He also asks Scheindlin to inquire about the lawyers’ expenses in the case, including their hotel accommodations, the extent of their research and even the cost they charged for photocopies.

“Various courts have also disallowed some or all of the in-house copying charges,” Siegel said.

In the IPO frenzy of the late 1990s, banks raised about $130 billion for companies going public while generating billions in fees. Investors who received IPO shares profited from selling the stock as prices soared. Many of those shares later plummeted, and the companies declared bankruptcy.

Investors who bought shares after trading began said the banks had secret arrangements requiring IPO clients to buy more stock later at higher prices. That created artificial demand that drove up prices until they collapsed, investors said. The earliest lawsuits were filed in 2001. Settlement talks went on for years.

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

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

Last Updated: September 8, 2009 15:56 EDT