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WASHINGTON—After some initial bickering, federal regulators agree that antitrust law should play a role, albeit limited, over the conduct of initial public offerings. In a new brief to the U.S. Supreme Court on Jan. 22, the U.S. Department of Justice’s Antitrust Division and the Federal Trade Commission (FTC) have joined with the Securities and Exchange Commission (SEC) in support of a unified position on regulation of IPOs. To ease tension among the regulators, the three agencies are telling the Supreme Court that there should be narrow antitrust oversight of IPOs but the SEC should remain the primary overseer. The Office of the Solicitor General at the Department of Justice filed the friend-of-the-court brief in a private suit that could cause current practices for preparing IPOs to be deemed violations of antitrust law. The SEC, which oversees the capital formation process, has long contended that the class action — Credit Suisse Securities (USA) LLC v. Billing, No. 05-1157 — was a wrong-headed effort to insinuate antitrust law to an already well-regulated industry. Despite initial disagreement between the SEC and the Department of Justice’s Antitrust Division, it appeared that those two agencies were finding common ground when both signed on to U.S. Solicitor General Paul Clement’s petition for Supreme Court review in November 2006. The brief was the first time that the FTC has weighed in on the case. Industry lawyers are opposing the government’s position. Instead, they are asking the high court to overturn what they see as a threat to capital formation in the United States. 2d Circuit ruling at issue At issue is a September 2005 ruling by the 2d U.S. Circuit Court of Appeals that overturned a district court’s initial ruling to dismiss the Billing case. In the suit, plaintiffs allege that investment bankers illegally colluded by engaging in common IPO syndication practices such as setting prices and allocating shares among themselves. The Department of Justice’s Antitrust Division, however, has argued that some elements alleged by the plaintiffs, who are represented by embattled class action law firm Milberg Weiss & Bershad of New York, could indeed violate antitrust laws, which generally apply to most industries. The solicitor general’s brief says that the antitrust laws do apply in limited cases in the securities industries, though the pleadings in the Billing case are too vague. As a result, the Department of Justice asks the high court to send the matter back to the district court for further action. But that’s not enough for the defendants, which include many of the nation’s largest bankers, such as Citigroup Global Markets Inc.; Deutsche Bank Securities Inc.; Merrill Lynch & Co. Inc.; Morgan Stanley, Janus Capital Management LLC; Goldman, Sachs & Co., Bear, Stearns & Co.; Lehman Brothers Inc.; Van Wagoner Capital Management Inc.; Fidelity Distributors Corp.; and Comerica Inc. They are hoping the court will overrule the appeals court and throw the case out. “In this case, the SEC regulation is so pervasive there’s no room for antitrust review,” said Stephen M. Shapiro, a partner in the Chicago home office of Mayer, Brown, Rowe & Maw, who will argue the matter before the high court in March. Uncertainty on Wall Street According to Shapiro, the district court’s decision to throw out the case is consistent with Supreme Court precedent, and the appellate decision has caused uncertainty on Wall Street. The specter of additional regulation could further dampen IPO activity — which has already started to leave New York’s financial market for the London Stock Exchange, and other markets, according to other briefs filed on Jan. 22. According to another amicus brief written by a host of antitrust experts, including free market advocate Robert Bork and Roy Englert Jr., a partner at boutique appellate firm Robbins, Russell, Englert, Orseck & Untereiner of Washington, the case “would be a problem for the whole economy, not just the investment banking firms.” Brief warns of greater risks If the plaintiffs win this case, syndicates would face greater risks, making the process more expensive while also lowering the prices for new stocks, according to the authors of the brief, representing the Securities Industry and Financial Markets Association, the U.S. Chamber of Commerce and the Business Roundtable. “It follows that financing would become more difficult, and some companies that would otherwise have gone public will choose not to do so. Others will choose to list on foreign exchanges rather than in the United States,” the brief continues. “Recent years have seen a dramatic migration of IPOs of foreign (and some U.S.) companies from our shores to overseas markets, and one of the most frequently cited reasons for the trend is the comparatively large regulatory burdens and litigation risks associated with the U.S. markets.” If the case is allowed to continue, those trends will continue, the brief warned. According to Englert, the brief does not advocate blanket immunity for all activity connected to IPOs. “But the conduct in this case is so closely related to the behavior that the SEC allows” that it must be immune from antitrust review, Englert said. “You have to give some berth to the lines the SEC has drawn so as not to overdeter.”

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