Oct. 6 (Bloomberg) -- Morgan Stanley and Credit Suisse Group AG are among banks winning final approval of a $586 million settlement of a lawsuit over initial public offerings of technology stocks, a fraction of the sum investors once sought.

The banks will pay to settle claims stemming from the bursting of the Internet bubble in 2000, which led to lawsuits against 309 technology companies and 55 underwriters, under a settlement approved today by U.S. District Judge Shira Scheindlin in Manhattan. In June she granted preliminary approval to a settlement made public in April.

Plaintiffs’ lawyers led by Melvyn Weiss, who has since been jailed in an unrelated kickback scheme, once demanded $12.5 billion to settle the case. The suit was brought on behalf of investors in the technology stocks.

“As Judge Scheindlin notes, we did the best we could against 110 law firms representing the most powerful people and firms on Wall Street,” Howard Sirota, a lawyer for the investors, said after the ruling.

“We are very pleased to be one important step closer to compensating investors who were injured in the dot-com IPO period of 1998 to 2000,” said Stanley Bernstein, another lawyer for the investors.

The recovery is about 2 percent of potential trial damages, Bernstein said previously. Scheindlin said in June the fractional payout may reflect the fiscal distress of the world’s investment banks following the credit-market collapse.

‘Fair, Reasonable’

According to settlement papers, lawyers for investors have notified more than 7 million individuals and entities who may be entitled to share in the settlement. As of Aug. 25, 85,000 claims have been submitted. No investor will receive less than $10, according to court papers.

Scheindlin said in a court opinion today that the settlement was “fair, reasonable, and adequate.” It remains possible that plaintiffs objecting to the accord may appeal the judge’s approval to the U.S. Court of Appeals.

“We hope to wrap it up and distribute the settlement funds to the shareholders as soon as possible,” Fred Isquith, another lawyer for the investors said today.

The cases stem from the boom and collapse of the technology-stock market in 2000. Investors in 309 companies that sold shares to the public for the first time 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.

Denied Wrongdoing

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

Credit Suisse spokesman Duncan King and Morgan Stanley spokeswoman Mary Claire Delaney declined to comment. Goldman Sachs spokeswoman Andrea Rachman also declined to comment.

In the IPO frenzy of the late 1990s, banks raised about $130 billion for companies they brought to market while generating billions in fees. Investors who received IPO shares profited from selling stock as prices soared. Many of those stocks 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.

Suits in 2001

The earliest lawsuits were filed in 2001. Settlement talks went on for years.

JPMorgan Chase & Co. agreed in 2006 to pay $425 million to settle its portion of the case. That settlement was scuttled after a federal appeals court overturned the approval of the case as a class-action, or group, lawsuit, saying it must proceed on behalf of fewer investors.

Brian Marchiony, a JPMorgan spokesman, declined to comment on today’s proceedings.

Internet startups such as Razorfish Inc. and Red Hat Inc. agreed in 2003 to pay $1 billion to settle. That deal was tossed out as a result of the same appellate ruling.

Lawyers representing the investors in the case sought legal fees of $195 million out of the settlement amount, plus another $50 million in expenses. The judge granted legal fees of $170 million and $47 million in expenses.

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: October 6, 2009 14:42 EDT