This morning the U.S. Supreme Court threw out, by a 7-1 vote, an antitrust class action suit filed by investors against 10 leading investment banks, alleging collusive and manipulative IPO underwriting practices during the height of the dot-com boom. The justices did not condone the alleged practices, but merely ruled that the plaintiffs could not invoke the antitrust laws in this instance because those laws were precluded by the more nuanced and particularized regulatory scheme set up by the securities laws.
Justice Stephen Breyer, writing for a majority that crossed ideological lines, said that the sorts of fine distinctions that the case presented — like which forms of coordinated actions taken by members of underwriting syndicates are beneficial to securities markets and which may be harmful — are better drawn by securities experts at the Securities and Exchange Commission (SEC) than by lay juries all over the country.
He also noted that any other ruling might encourage plaintiffs to “dress what is essentially a securities complaint in antitrust clothing” in order to do an end-run around the special hurdles that Congress enacted in 1995 “to weed out unmeritorious securities law suits.”
The investment banks had been accused of acting together to take advantage of the extraordinary demand for IPO securities during the late 1990s by forcing buyers to commit to bidding up the price of a stock in the aftermarket (a practice called “laddering”), or to paying unreasonably high commissions to the brokers on other transactions (a practice that resembles commercial bribery), or to buying less valuable stocks as well (“tying”).
The case had caused a split within the government, with the SEC favoring preemption and the Department of Justice Antitrust Division opposing, but the Court did not appear to find the case very difficult.
The case is called Credit Suisse Securities v. Billing, and the defendants included units of Credit Suisse (CS); Bear Stearns (BSC); Citigroup (C); Deutsche Bank (DB); Goldman, Sachs (GS); Lehman Brothers (LEH); Merrill Lynch (MER); Morgan Stanley (MS); and Bank of America (BAC).
The sole dissenter was Justice Clarence Thomas, who wrote that a broad “savings” clause in the securities statutes — saying that the securities laws were not intended to eliminate other legal remedies investors might resort to — meant that the antitrust laws and securities laws should both apply notwithstanding potential conflicts and confusion. Justice Anthony Kennedy did not participate.
Meanwhile, the Court has still not yet ruled on what is expected to be the main event of the term, as far as securities class actions go: Tellabs v. Makor Issues & Rights. That case involves interpretation of one of the critical hurdles enacted by Congress in 1995 to, as the Court said today, “weed out” frivolous cases — the requirement that the plaintiffs plead facts creating a “strong inference” that company officials acted with fraudulent intent.