ANTITRUST | 'Epic' stock conspiracy suit reinstated

There is no evidence that Congress intended to repeal the antitrust laws and immunize �tie-in� agreements on initial public offerings, the 2d U.S. Circuit Court of Appeals has ruled.

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There is no evidence that Congress intended to repeal the antitrust laws and immunize “tie-in” agreements on initial public offerings, the 2d U.S. Circuit Court of Appeals has ruled. Reversing the dismissal of an antitrust action brought against major Wall Street underwriters, the 2d Circuit rejected the underwriters’ claim that “implied antitrust immunity arises from a potential specific conflict” between the antitrust laws and the securities laws. The court also rejected the claim that immunity from suit under the antitrust laws was implied because of the U.S. Securities and Exchange Commission’s (SEC) “pervasive” regulation of the markets. Billing v. Credit Suisse First Boston, No. 03-9284. The lawsuits allege what 2d Circuit Judge Richard Wesley called “an epic Wall Street conspiracy” to manipulate the price of stocks in initial public offerings. The chief allegation concerns “tie-in” agreements, whereby the underwriters demanded extra payments-or other commitments-in excess of the actual stock price from investors who sought allocations in hot initial offerings. Judge William Pauley of the Southern District of New York had dismissed the actions, finding that the “SEC, through application of its broad regulatory authority over the broad spectrum of conduct related to securities offerings, is empowered to regulate the conduct alleged” by the plaintiffs. “It is this sweeping power to regulate that spawns the potential conflict with the antitrust laws” that, under case law, “requires a finding of implied immunity,” Pauley said in In re Initial Public Offering Antitrust Litigation, No. 01 Civ. 2014, and Pfeiffer v. Credit Suisse First Boston Corp., No. 01 Civ. 11420. The plaintiffs had argued that other extensively regulated industries are nonetheless subject to the restraints of antitrust laws. The securities industry was like the oil or television industry. The defendants said that recent 2d Circuit case law favored a finding of implied immunity in the securities context. The 2d Circuit rejected that interpretation. The circuit last addressed the implied immunity issue in In re Stock Exchanges Options Trading Antitrust Litigation, 3317 F.3d 134 (2003). There the court recognized the defendants’ claim of immunity in a case where purchasers of equity options claimed that exchanges and exchange members had violated the Sherman Act by conspiring to restrict the listing and trading of particular options so that options were only listed on a single stock exchange at a time. Although the SEC first approved of the practice and later changed its mind, Wesley said that the circuit in that case found implied immunity, concluding “that antitrust principles directly conflicted with the SEC’s encouragement and affirmative approval of exchange plans for exclusive listings.” Billing was different. Wesley said that the claim of implied immunity for the tie-in arrangements is “in many ways, unlike any we have seen. Tie-in arrangements are recognized as means of dangerous manipulation, and there is no indication that Congress contemplated repealing the antitrust laws to protect them.” According to Wesley, “Thus defendants insist that the SEC could exercise powers-powers the agency refuses to recognize-to immunize conduct that neither Congress nor the agency ever contemplated permitting.” Wesley went on to state that there “may be reasons why Congress might choose to immunize such conduct. “The SEC and defendants have vigilantly reminded us that the securities markets in toto might be better entrusted to an expert agency than to the federal courts,” he said. “While we might agree, we do not have the responsibility for making national policy. Congress knows how to immunize regulated conduct from the antitrust laws. To date, it has not done so . . . .Construing the statutes as written, we find no repeal.”

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