The US Supreme Court will decide whether underwriters of certain technology firms’ initial public offerings (IPOs) can be held liable under the federal antitrust laws for allegedly conspiring to inflate aftermarket prices of the offered securities. The investment banks concerned include Credit Suisse First Boston Corp., Goldman Sachs & Co., Lehman Brothers, Inc., Merrill Lynch, Pierce, Fenner & Smith, Inc., and Morgan Stanley & Co., Incorporated, among others. At issue is whether conduct of these investment banks relating to the IPOs is immunized by the federal securities laws against challenge under the antitrust laws.
The matter to go before the Supreme Court consists of numerous consolidated actions, including actions by both IPO purchasers and aftermarket purchasers. The IPO purchaser plaintiffs allege that the investment banks conspired to exact supra-competitive charges with respect to sales of IPO securities through various tie-in agreements. Under such agreements, direct IPO purchases were conditioned upon paying inflated commissions or purchasing additional securities in follow-up public offerings, or other less desirable securities. Aftermarket purchasers alleged that these tie-in agreements, in conjunction with certain other activities, artificially raised prices of IPO securities in the aftermarket above competitive levels. Both groups of plaintiffs charged that collusion among the underwriting banks violated Section 1 of the Sherman Act and various provisions of New York state antitrust laws.
Arguing that federal securities laws occupy the highly-regulated field of securities offerings, the investment banks, joined by the Securities and Exchange Commission, succeeded in having the cases dismissed by the United States District Court for the Southern District of New York. On appeal, however, the Court of Appeals for the Second Circuit rejected the District Court’s holding that securities laws impliedly repealed federal antitrust laws and pre-empted state antitrust laws, and reinstated the claims. The Supreme Court now will decide the proper standard for implying antitrust immunity for conduct regulated by the securities laws.