The cleanup of the wreckage of the dot-com era continues as a federal judge granted preliminary approval yesterday for a $1 billion settlement for investors in companies that went public during the height of the tech bubble in 1998-2000. The investors are drawn from 298 separate class-action suits against some of that era’s former highfliers, including CNET, Red Hat and Corvis. The amounts that companies have committed to paying vary, according to Bloomberg News, which said CNET agreed to pay $110,000 to Corvis’s $17 million pledge.

The initial claim focused on allegations that underwriters used a variety of schemes to manipulate the price of highly sought after initial public offerings. In turn, the alleged price manipulation benefited the executives of the companies, who got to unload stock at higher prices, and the underwriters, who got to disguise how large their fee was. While the companies obviously had no ability to control the value and trading of their stock in the secondary market, Milberg Weiss Bershad & Schulman’s Melvyn Weiss, the lead plaintiff’s lawyer on the case, said several years ago in interviews that, “they participated in road shows, they had conversations with the underwriters,” in arguing that the companies should have known what was going on.

A call to Mr. Weiss for comment on yesterday’s ruling was not retuned. A call to the lead defense lawyer for 40 of the defendant companies, Morrison & Foerster’s Jack Auspitz, was not returned.

The settlement is largely separate from a series of still-pending suits against some of the 55 investment banks that brought the defendants public, including Goldman Sachs, Credit Suisse First Boston, and Morgan Stanley, the top three Internet IPO underwriters. Charges made against the banks include “laddering,” in which larger blocks of low-priced IPO stock would be given to select clients, who would then promise to take bigger stakes after the stocks hit the open market. The mandatory bidding on the market was one of the catalysts for the often-incredible run up in the price of these stocks. Moreover, the practice, long held to be unethical, also shut out many smaller investors who could not provide the investment banks with the size of the order flow or volume of trades that larger money managers could.

Other tech-bubble-era investment bank practices that are being litigated against include charging allegedly excessive commissions for popular IPOs, allocating IPOs to investors but charging them excessive markups on trades in other stocks, and issuing biased research after the so-called “quiet period” ends during the prelude to an IPO.

However, the investors’ suit does maintain one important connection to the claims against the investment banks: should the investment banks offer to settle with investors for more than $1 billion, the companies do not have to pay anything. Thus the incentive for the companies settling becomes one of active cooperation with the plaintiffs with respect to document discovery and providing testimony.

This led U.S. District Court Judge Shira Scheindlen to note in her 52-page opinion that “the value of 298 willing allies in litigation, as opposed to the specter of hundreds of uncooperative opponents, is significant.” Preliminary approval does not mean that investors should be getting a check anytime soon, however. The initial settlement was struck in June 2003 and the past 21 months have been spent haggling over administrative details. The settlement will not begin to stem the losses experienced by most investors, with recoveries averaging about $.087 per share.