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| 2003
News and Press Releases |
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HEADLINE ARCHIVED:
A LAWSUIT ON PUBLIC OFFERINGS SHINES A SPOTLIGHT ON A DISPUTE BETWEEN THE S.E.C. AND THE JUSTICE DEPT.
By: Floyd Norris
The New York Times, November 11, 2003
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EXCERPT: A CLASS-ACTION lawsuit about initial public offerings that produced a ruling favorable to Wall Street bankers last week also aired an unusual public dispute between the Justice Department and the Securities and Exchange Commission. Judge William H. Pauley III of the United States District Court in Manhattan ruled that Wall Street abuses in the underwriting of initial public offerings cannot be challenged under antitrust law. That decision not only removed a legal concern for major investment banks but upheld the S.E.C.'s argument that allowing the case to proceed could damage the commission's "ability to carry out its regulatory obligations." In a brief that strongly criticized the S.E.C. for not performing its duties, the New York attorney general had sided with the plaintiffs and the Justice Department and urged the judge not to dismiss the case. But Judge Pauley, in dismissing portions of the lawsuit, stated that "any other result would force the defendants to navigate the Scylla of securities regulation and Charybdis of antitrust law." He held that the conduct of the underwriters "is impliedly immune from antitrust scrutiny." The decision does not exempt the major investment banks from litigation over possible abuses of the I.P.O. process in the late 1990's boom. The judge noted that the part of the suit contending that investment banks violated securities law could proceed. And he noted that the S.E.C. had taken action against underwriters for "engaging in conduct very similar, if not identical, to that alleged" in the class-action suit, which claimed violations of the Sherman antitrust law. The Supreme Court in the past has ruled that a federal regulatory scheme for an industry can amount to an implicit repeal of antitrust laws for that industry. But it has resisted a bright-line test in the securities industry, allowing a suit in one 1963 case and rejecting suits in two 1975 cases. In practice, said Joel Seligman, the dean of law at Washington University in St. Louis and a historian of the S.E.C., "very few antitrust cases have gone forward within securities laws, because of S.E.C. oversight. Typically, the facts have to be very egregious." The United States Court of Appeals for the Second Circuit has held that the three Supreme Court cases, when read together, yield two narrowly defined situations in which the doctrine of implied immunity will prevail. The first was when a regulatory agency "actively regulates the particular conduct" complained of in the suit. The second was "when the regulatory scheme is so persuasive that Congress must be assumed to have foresworn the paradigm of competition." In the lawsuit, the S.E.C. argued that both situations prevailed, and the judge agreed. He noted that many of the actions that the plaintiffs pointed to as evidence of a conspiracy to violate the antitrust laws -- such as underwriters combining into syndicates and being members of the NASD, a self-regulatory organization -- were allowed or even required by the S.E.C. The Justice Department, on the other hand, took the position that because some actions cited in the suit were clearly prohibited by securities laws and the S.E.C., "the conduct alleged in the complaints is not immune from scrutiny under the antitrust laws."
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