Legal Beagles Bite JPMorgan

The reversal comes just a year after JPMorgan's last settlement snafu. The bank passed up an early $1.4 billion offer to settle with shareholders in the WorldCom litigation. But after some adverse rulings in the case, JPMorgan ended up paying $2 billion instead.

Tuesday's 51-page ruling from the three-judge appellate panel is a big victory for the other 54 Wall Street firms that are still defendants in the lawsuit. The ruling means that the allegedly aggrieved investors must now pursue their cases on the own, if they hope to collect any damages.

Given the high cost of litigation and the difficulty proving the manipulation allegations, it's likely that many investors will opt not to go it alone against the likes of Goldman Sachs(GS Quote), Merrill Lynch(MER Quote), Citigroup(C Quote) and Credit Suisse(CS Quote) and Morgan Stanley(MS Quote).

The IPO suit contends that 55 investment banks defrauded investors by artificially inflating the value of dot-com IPOs for companies such as Ask Jeeves, iVillage, Razorfish and TheGlobe.com. The suit claims they published bullish reports to prop up those stocks and struck deals with institutional investors to encourage them to buy shares of those companies in the aftermarket.

JPMorgan does have a few things in its favor. First, it has yet to actually pay the money to Milberg Weiss, the law firm that's serving as lead counsel in the IPO litigation. Second, the settlement, although agreed to in a memorandum of understanding between the parties, hasn't been put into a final document.