|  | | 2007 News and Press Releases | | |
HEADLINE NEWS:
Underwriting Practices Get Shield, Investors argue that syndication practices in the dot-com era constituted collusion, but the Supreme Court disagrees.
Cecile Kohrs Lindell
Daily Deal. June 19, 2007
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EXCERPT: In a major decision for investment banks, the Supreme Court Monday, June 18, ruled that antitrust laws cannot be applied to the industry's underwriting practices. The already highly regulated world of capital formation is "clearly incompatible" with antitrust enforcement, according to Justice Stephen Breyer, who wrote the opinion in Glen Billing v. Credit Suisse First Boston LLC et al. The decision leaves federal regulation of the securities industry almost entirely in the hands of the Securities and
Exchange Commission and outside the purview of antitrust enforcers, who are charged with safeguarding fair competition. A class action had complained that brokers and banks as far back as 1997 resorted to collusion, price fixing and market allocation as part of initial public offerings during the dot-com era that led to soaring prices and their subsequent collapse. The suit attacked many common practices of IPO syndication, including allocation of shares among participating investment banks. But the court threw the case out in a 7-1 opinion, with Justice Clarence Thomas alone in dissent. Previously, a federal appeals court ruled investors could pursue the antitrust claims. "This decision is important to the investment community because it reaffirms the Securities and Exchange Commission's primacy as the industry regulator," said Stephen Shapiro, a partner at Mayer, Brown, Rowe & Maw LLP, who argued the case for the banks. If private plaintiffs and the Department of Justice were allowed to bring antitrust cases, there might be great confusion as courts tried to apply two incompatible areas of law, making banks unwilling to operate their underwriting syndicates, according to Breyer. He warned in the opinion there was "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." If antitrust law applied to the securities business, investment banks would have faced the prospect of paying triple damages in financial judgments. Clarity is essential for the defendant banks, which included Bear, Stearns & Co., Comerica Bank, Credit Suisse Group, Citigroup Global Markets Holdings Inc., Deutsche Bank Securities Inc., Fidelity Distributors Corp., Janus Capital Management LLC, Goldman, Sachs & Co., Lehman Brothers Inc., Merrill Lynch & Co., Morgan Stanley, Robertson Stephens Inc. and Van Wagoner Capital Management Inc. But companies interested in raising capital will also be comforted by Monday's decision, Shapiro said. "If the federal government doesn't speak with one voice, no one would know which rule to obey."
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