Bankrupt online retailer EToys is claiming its shares were under-priced when floated on the stock market at the height of the internet boom.

The news comes despite the fact that thousands of investors lost hundreds of dollars in EToys shares following the firm's collapse.

EToys is now suing Goldman Sachs investment bank for allegedly mismanaging its public listing, in the latest twist of the dot.com blame game.

It is fighting over the embers of a dead company

Adam Wishart

The wreckage of dot.com mania has prompted a host of lawsuits, as angry investors take internet firms and their analysts to court for misinforming them.

The EToys saga is different and more perverse: it claims to have been undervalued even though it subsequently admitted its business model was not profitable and then declared itself bankrupt.

The decision to sue has been described as "ludicrous madness," by Adam Wishart, the co-author of a book about the failed e-tailer's erroneous view of reality.

"It is fighting over the embers of a dead company," Mr Wishart told BBC News Online.

Deliberate underpricing

EToys was one of the most ambitious internet start-ups, aiming to dominate the toys market and outsell traditional toy merchant ToysRUs.

It floated in May 1999 at $20 a share, giving it an impressive market value of $2bn.

EToys milestones

Launched in 1997 Floated in 1999 Stock hits high in Oct 1999 UK site closes 3 Jan 2001 700 employees laid off 25 Jan 2001 293 employees laid off 5 Feb 2001 EToys filed for bankruptcy 26 Feb 2001 US site closed 7 March 2001

That is about 60 times the amount of its annual revenue whereas an average highstreet retailer would expect to achieve a market value of about three times its yearly revenues.

Nevertheless, EToys claims that Goldman Sachs deliberately underpriced its stock so that investors could reap a huge profit and then give the bank extra commission for the privilege.

Any investors who chose to sell out quickly may indeed have made a quick buck: the stock peaked at $85 during the first day's trading before closing at $76.

But the bottom fell out of the market less than a year later, and shares were trading at just 9 cents before the firm ran out of cash and admitted defeat in March 2001.

Passing the buck

The motives and the timing for the lawsuit are unclear.

Mr Wishart suggests EToys may want to try and stem the stream of investors filing lawsuits against it by protesting that it too was conned.

But he also suspects that those left running the remnants of the firm are still running with a distorted sense of reality.

There are few signs that the firm will emerge from administration: it has not sold any toys for over a year, has sold-off its stock and warehouses and sacked most of its staff.

EToys was launched in 1997 by the internet incubator Idealab, as entrepreneurs competed to apply the Amazon.com model to other industries.

Although it was one of the most popular sites over the holiday period, its sales were not enough to cover its debts.

Despite its first-mover advantage on the internet and investment in customer service, it miscalculated the costs of running a retail business and suffered as giant High Street rival Toys R Us teamed up with Amazon.