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Supreme Court Rules on Antitrust Preemption
Antitrust class actions against investment banks that acted
as underwriters in initial public offerings were precluded by the federal
securities laws, ruled the U.S. Supreme Court. The court found that the
antitrust suits threatened serious harm to the efficient functioning of the
securities markets.
The court concluded that the securities laws are clearly
incompatible with the application of the antitrust laws in this context because
IPOs are an area of conduct squarely within the heartland of securities
regulations, the SEC has clear and adequate authority to regulate the area and
is engaged in active and ongoing regulation and there is a serious conflict
between the antitrust and securities regulatory regimes.
The investors attacked underwriter efforts to collect
commissions through certain practices, such as laddering and tying. The court
noted that the SEC actively enforces the regulations forbidding the conduct in
question and any investors harmed by any unlawful practices by underwriters may
obtain damages under the federal securities laws. In addition, the SEC proceeds
with great care to distinguish the encouraged and permissible from the
forbidden, said the court, while the threat of antitrust lawsuits, through error
and disincentive, could seriously alter underwriter conduct in undesirable ways,
Further, the effort of underwriters to jointly promote and sell newly issued
securities is central to the proper functioning of well-regulated capital
markets.
The court noted that the IPO process supports new firms
that seek to raise capital and helps to spread ownership of those firms broadly
among investors. Initial public offerings also direct capital flows in ways that
better correspond to the public's demand for goods and services, observed the
court.
The court also emphasized that the SEC is itself required
to take account of competitive considerations when creating securities-related
policy and embodies such considerations in its regulations, which makes it
somewhat less necessary to rely upon antitrust actions to address
anti-competitive behavior. Further, the court reasoned that permitting the
antitrust actions would allow the investors to "dress" a securities
complaint in "antitrust clothing" and thus risk circumventing the
Private Securities Litigation Reform Act's procedural requirements for the
filing of securities actions.
Rejecting the Solicitor General's suggestion that the trial
court be permitted to determine if the allegations of prohibited conduct can be
separated from conduct that is permitted by the securities regulatory scheme,
the court emphasized that the official's proposed disposition does not
convincingly address the difficulty of drawing a complex line separating
securities-permitted from securities-forbidden conduct and the need for
securities-related expertise to draw that line. Moreover, it does not address
the likelihood that parties will depend upon the same evidence yet expect courts
to draw different inferences from it, as well as the serious risk that antitrust
courts will produce inconsistent results that, in turn, will overly deter
syndicate practices important in the marketing of new issues.
Justice Breyer wrote the opinion for the majority of six.
Justice Stevens concurred only in the judgment. He said that the alleged conduct
of the investment banks does not violate the antitrust laws and urged the court
not to hold that Congress has implicitly granted them immunity from the
antitrust laws.
Justice Thomas dissented, concluding that the "savings
clauses" in both the Securities and Exchange Acts precluded preemption.
According to Justice Thomas, "[a] straightforward application of the saving
clauses to this case leads to the conclusion that respondents' antitrust suits
must proceed." Justice Kennedy took no part in the case.
Credit Suisse Securities (USA) LLC v. Billing (US Sup
Ct) is reported at ¶94,334.
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