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Court Takes IPO Underwriters Off the Antitrust Hook

Wall Street investment firms that helped bankroll the high-tech IPO boom of the 1990s are immune from antitrust suits, the U.S. Supreme Court ruled Monday.

The case focused on disgruntled investors who claimed investment houses created syndicates to promote and market the then high-flying IPOs.

In a case dismissed by a lower court but reinstated by an appeals panel, the investors contended the syndicates conspired to pay unusually high commissions to themselves and engaged in other unlawful manipulations of the market.

The Supreme Court did not rule on the merits of the charges, only that the Securities and Exchange Commission (SEC) was better able to handle these types of cases.

"The underwriters' efforts jointly to promote and sell newly issued securities is central to the proper functioning of well-regulated capital markets; the law grants the SEC authority to supervise such activities," Justice Stephen Breyer wrote in the 7-1 opinion. "The SEC has continuously exercised its legal authority to regulate this type of conduct."

Breyer wrote that "reasonable but contradictory inferences" could be drawn from evidence showing both unlawful antitrust activities and lawful securities actions.

"Certain considerations, taken together, lead to the conclusion that securities law and antitrust law are clearly incompatible in this context," Bryer wrote.

"There is a serious risk that antitrust courts, with different non-expert judges and different non-expert juries, will produce inconsistent results. "

The court ruled there is no practical way to isolate antitrust lawsuits from existing securities law so that the suits challenge only the activities the investors sought to target.

"These considerations suggest that antitrust courts are likely to make unusually serious mistakes in this respect," Breyer wrote. "Allowing an antitrust lawsuit would threaten serious harm to the efficient functioning of the securities market."

The court further pointed out that investors harmed by unlawful practices could sue and obtain damages under securities law, precluding the need to invoke antitrust statutes. The ruling also noted the SEC is required to take into account competitive considerations when approving rules and regulations.

"In sum, an antitrust action in this context is accompanied by a substantial risk of injury to the securities markets and by a diminished need for antitrust enforcement to address anticompetitive conduct," Breyer wrote. "Together these considerations indicate a serious conflict between application of the antitrust laws and proper enforcement of the securities law."