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Disagreeing with the U.S. Department of Justice, the Securities and Exchange Commission has asked a federal judge to dismiss antitrust actions claiming major New York investment banks conspired to fix prices and demand kickbacks on initial public offerings. In an amicus brief filed with Southern District of New York Judge William H. Pauley III, the SEC claims Congress granted it “pervasive regulatory authority” over public offerings, and never intended to have private antitrust plaintiffs determine “the appropriate role for competition in the securities industry.” As enforcer of the nation’s antitrust laws, the Justice Department filed its own amicus brief with the judge, asserting that Congress had no intention of shielding Wall Street from antitrust liability when it crafted the securities laws and established the SEC. Judge Pauley heard motions to dismiss on Jan. 16 in the cases against Salomon Smith Barney and other investment banks. The suits charge the investment banks conspired to demand kickbacks in the form of purchases of other stocks. Clients who wanted shares, it is alleged, also had to commit to buying stock at higher prices fixed by the banks, a process known as “laddering,” which is supposed to ensure a rapid rise in the price of stocks brought to market for the first time. The cases before Pauley are the antitrust companions to hundreds of suits over initial public offerings now before federal Judge Shira Scheindlin of the Southern District. Those suits were brought by investors who claim that collusion between Internet companies and investment banks artificially inflated share prices. In the antitrust cases, the SEC’s brief defended the agency’s “comprehensive authority” over the long-accepted practice of syndicating the dispersal of new issues. The SEC also argued it was “actively pursuing possible regulatory responses to the type of practices” alleged in the case. But the commission also contended that the plaintiffs were trying to patch together an antitrust case against the investment banks by citing some activities that are actually legal under the current regulatory regime, such as “continuously communicating and working together as co-underwriters and members of syndicates and as market makers.” The plaintiffs, the SEC states, “allege almost entirely that defendants engaged in joint activities that are necessary to conduct syndicated underwriting under the system that has been used in the United States for decades.” But in the Justice Department’s view, the complaints against the banks “allege conduct prohibited by the securities laws.” “Prohibitions on fraud and manipulation in the sale of securities have been at the core of federal securities law since the enactment of the Securities Act of 1933,” the Justice Department states in its brief. The department emphasized that courts normally discourage a finding of implied immunity, and that under U.S. Supreme Court case law, there must be a showing of “clear repugnancy” between the antitrust laws and the regulatory scheme “to justify a finding of implied repeal.” Plaintiffs’ lawyer Fred T. Isquith of New York-based Wolf Haldenstein Adler Freeman & Herz said Friday that from his perspective, the “key question” Judge Pauley asked at the hearing was whether a ruling dismissing the cases in the banks’ favor raised the possibility that the antitrust laws have virtually no application to the securities industry. For Isquith, the mere fact that an industry is heavily regulated should have no bearing on whether its principals are subject to laws against price fixing. “In my view, this is a classic antitrust case,” he said. “It’s like the oil industry or the television industry, both of which are heavily regulated, got together and said they were going to fix prices.” At last week’s hearing, Robert McCaw of Washington, D.C.-based Wilmer Cutler & Pickering, who represents defendant Salomon Smith Barney, told Judge Pauley that the SEC’s position, coupled with two recent 2nd U.S. Circuit Court of Appeals decisions, are “dispositive of the implied immunity questions.” The 2nd Circuit found that implied immunity existed in both Friedman v. Salomon Smith Barney, 01-7207 and In re Stock Exchanges Options Trading Antitrust Litigation, 01-7371, 01-7580. Both cases, McCaw told the judge, “give content to the phrase ‘plainly repugnant for immunity decisions’ under the federal securities laws.” “The application of the antitrust laws are plainly repugnant where the application of the competition-first standard threatens to intrude upon the SEC’s regulatory authority,” McCaw said. Pauley asked the parties for additional briefing on the matter at the Jan. 16 hearing.

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