U.S. News

Supreme Court Sides With Wall Street Banks in IPO Case


The Supreme Court handed Wall Street underwriters a major victory Monday by ruling that an antitrust lawsuit against them over the pricing of initial public stock offerings (IPOs) cannot go forward.

By a 7-1 vote, the justices reversed a ruling by a U.S. appeals court in New York that the lawsuit by buyers of Internet and technology stock issues in the late 1990s could proceed.

"We must interpret the securities laws as implicitly precluding the application of the antitrust laws to the conduct alleged in this case," Justice Stephen Breyer wrote in the 20-page majority opinion.

The lawsuit accused the big investment banks of conspiring to impose anti-competitive charges on prospective buyers and inflating share prices in the post-IPO aftermarket for some 900 initial public offerings.

The ruling was a victory for the big investment banks, including Credit Suisse Group, JPMorgan Chase, Merrill Lynch and Morgan Stanley, which had appealed to the Supreme Court.

The Supreme Court's ruling said the underwriters should be immunized from such an antitrust lawsuit because the Securities and Exchange Commission regulates the conduct at issue.

Breyer said that to permit antitrust lawsuits such as this one threatened serious securities-related harm. He said the SEC has the expertise to distinguish what is forbidden from what is allowed.

Breyer also said any enforcement-related need for an antitrust lawsuit is unusually small. The SEC actively enforces the rules and regulations for the conduct at issue, he said.

Also, investors harmed by underwriters' unlawful practices may bring lawsuits and obtain damages under the securities law.

"We also note that Congress, in an effort to weed out unmeritorious securities lawsuits, has recently tightened the procedural requirements that plaintiffs must satisfy when they file those suits," Breyer said.

A federal judge initially dismissed the class action lawsuit on the grounds federal securities laws preempt federal and state antitrust laws.

But the appeals court disagreed in reinstating the lawsuit.

It ruled there was no evidence Congress intended to repeal the antitrust laws and immunize "tie-in" agreements on IPOs.

Other well-known Wall Street banks involved in the lawsuit included units of Bear Stearns; Citigroup; Fidelity Investments; Goldman Sachs Group and Janus Capital Group.

"Credit Suisse is pleased with this decision," spokeswoman Victoria Harmon said.

Merrill declined to comment, as did Goldman Sachs and JP Morgan.

Bear Stearns and Citigroup did not immediately return calls seeking comment.

Joel Mitnick, a lawyer for Deutsche Bank Securities, another defendant in the case, called the ruling "an important decision that helps to settle law in an area where plaintiffs' antitrust cases threaten to disrupt the ability of the securities markets to raise capital.

"It clarifies that, with respect to IPOS at least, the antitrust laws have been displaced by SEC regulation.

"The court specifically referred to the fact that there were shareholder lawsuits and that the securities laws remain a remedy to individual shareholders who may have a valid cause of action under the securities laws," Mitnick added.

Justice Clarence Thomas was the only dissenter and said the lawsuit should be allowed to proceed.