3 Suits Assert 1st Bank Bought Own Shares to Inflate Its Bid

First Bank System Inc.'s controversial share-repurchase program is now the subject of at least three lawsuits that claim the bank is manipulating its stock price in an effort to inflate its bid for First Interstate Bancorp.

Wells Fargo & Co. filed an amended complaint in Delaware Chancery Court last week, adding an allegation - to an original complaint filed in mid- November - that First Bank had illegally manipulated the market price of its shares through the buybacks. Wells Fargo has launched a hostile tender offer for First Interstate.

First Bank System, and its broker, Donaldson Lufkin Jenrette Inc., have also been named in at least two suits filed in California federal court alleging that the share repurchases violate the Securities Exchange Act of 1934.

"First Bank, with knowledge of the breaches of fiduciary duties alleged, substantially assisted in such breaches by surreptitiously repurchasing large blocks of its own stock immediately after the First Bank proposed merger was announced so as to raise artificially the value of its offer and thereby to mislead the First Interstate stockholders," said the Wells Fargo filing amendment.

After First Bank announced its Nov. 6 agreement to buy Interstate, Donaldson Lufkin began buying substantial blocks of First Bank shares.

Between Nov. 6 and Nov. 15, for example, 47% of First Bank's trading volume reflected Donaldson Lufkin purchases. Donaldson Lufkin is the sole broker charged with buying First Bank shares for the bank's share- repurchase program, sources said. However, it is unclear if Donaldson Lufkin was buying just for First Bank or for other clients as well.

First Bank will not comment whether it is repurchasing shares, but said it would soon issue a statement.

No hearings or court dates have been set in Delaware for the case, which will be tried before Chancellor William Allen. The parties are now in discovery, a process in which the two sides exchange information.

Hearings and court dates are expected to take place in January or February. The share-repurchase issue will be argued as part of a larger case filed by Wells Fargo seeking to undo Interstate's corporate defenses. Wells' attorney is Cravath, Swaine & Moore.

The California cases, class-action suits filed on behalf of shareholders, allege that the repurchases were intended to deceive, manipulate and defraud Interstate investors, and thus violated the 1934 Securities Exchange Act.

The plaintiffs' attorney in the first suit, filed in the U.S. District Court Central District of California on Nov. 22, is Blecker & Collins.

The firm representing the plaintiffs in the second suit is Milburg, Weiss, Bershad, Hynes & Lerach, a specialist in shareholder claims.

Since the media reports first emerged about the repurchases, the First Bank buyback apparently has slowed.

According to figures from Bridge Data and Autex, which monitor broker trading, Donaldson Lufkin's purchases of First Bank System shares tapered off significantly after Nov. 16.

Between Nov. 20 and Nov. 30, Donaldson Lufkin purchases were reported to represent roughly 10% of First Bank trading volume.

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