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

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

“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.”

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