Supreme Court Rules on Antitrust Case

Antitrust class actions against investment banks that acted as underwriters in IPOs of companies were precluded by the federal securities laws, ruled the US Supreme Court, since allowing the antitrust suits threatened serious harm to the efficient functioning of the securities markets. The Court concluded that the securities laws are clearly incompatible with the application of the antitrust laws in this context since IPOs are an area of conduct squarely within the heartland of securities regulations; the SEC has clear and adequate authority to regulate the area and is engaged in active and ongoing regulation; and there is a serious conflict between the antitrust and securities regulatory regimes. (Credit Suisse Securities (USA) LLC v. Billing, No. 05-1157.)

The investors attacked underwriter efforts to collect commissions through certain practices, such as laddering and tying. The Court noted that the SEC actively enforces the regulations forbidding the conduct in question and any investors harmed by any unlawful practices by underwriters may obtain damages under the federal securities laws. In addition, the SEC proceeds with great care to distinguish the encouraged and permissible from the forbidden, said the Court, while the threat of antitrust lawsuits, through error and disincentive, could seriously alter underwriter conduct in undesirable ways.

Further, the effort of underwriters to jointly promote and sell newly issued securities is central to the proper functioning of well-regulated capital markets. The IPO process supports new firms that seek to raise capital; it helps to spread ownership of those firms broadly among investors; it directs capital flows in ways that better correspond to the public’s demand for goods and services.

The Court also emphasized that the SEC is itself required to take account of competitive considerations when creating securities-related policy and embodies such considerations in its regulations, which makes it somewhat less necessary to rely upon antitrust actions to address anti-competitive behavior.

Further, the Court reasoned that permitting the antitrust actions would allow the investors to dress an essentially securities complaint in antitrust clothing and thus risk circumventing the Private Securities Litigation Reform Act’s procedural requirements for the filing of securities actions.

Rejecting the Solicitor General’s suggestion that the trial court be permitted to determine if the allegations of prohibited conduct can be separated from conduct that is permitted by the securities regulatory scheme, the Court emphasized that the official’s proposed disposition does not convincingly address the difficulty of drawing a complex line separating securities-permitted from securities-forbidden conduct and the need for securities-related expertise to draw that line. Moreover, it does not address the likelihood that parties will depend upon the same evidence yet expect courts to draw different inferences from it, as well as the serious risk that antitrust courts will produce inconsistent results that, in turn, will overly deter syndicate practices important in the marketing of new issues.

Justice Breyer wrote the opinion for a solid majority of six. Justice Stevens concurred only in the judgment. He said that the alleged conduct of the investment banks does not violate the antitrust laws and urged the Court not to hold that Congress has implicitly granted them immunity from the antitrust laws. Justice Thomas dissented and Justice Kennedy took no part in the case.