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IPO Claims Could Be Subject to Antitrust Laws

The antitrust laws could apply to an alleged conspiracy involving underwriting firms in initial public offerings. A panel of the 2nd U.S. Circuit Court of Appeals reversed an earlier holding by a federal district court (SD NY) that the federal securities laws impliedly repealed federal antitrust laws with regard to this form of market conduct and preempted state antitrust laws. According to the appellate panel, the "district court's decision goes too far," as "the heart of the alleged anticompetitive behavior finds no shelter in the securities laws."

As alleged, several major underwriting firms entered into illegal contracts with purchasers of securities distributed in initial public offerings. Through these contracts and by other illegal means, the underwriting firms allegedly executed a series of manipulations that inflated the price of the securities after the IPOs. The investors claimed that the firms capitalized on this artificial inflation to profit at the expense of the investing public.

The district court had held that "the SEC, both directly and through its pervasive oversight of the NASD and other SROs, either expressly permits the conduct alleged in the Sherman Act Complaint or has the power to regulate the conduct." The Commission also possessed a "unique mandate to balance competition with other market concerns," stated the district court, and to allow plaintiffs "to use various state antitrust regulations to balkanize the national securities regulatory regime would stand as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress."

The 2nd Circuit stated that a finding of implied repeal could be based on either the pervasive regulation of the area by another statutory scheme or the existence of potential specific conflicts between the laws in question. The court noted that pervasive regulation is a vague concept that rarely supports an immunity finding. With regard to conflicts, the court considered 1) congressional intent as reflected in the legislative history and statutory structure, 2) the possibility for conflicting mandates, 3) the possibility that application of the antitrust laws would render moot a regulatory provision, 4) the history of agency regulation of the anticompetitive conduct and 5) any other evidence indicating that the statute implied a repeal. After reviewing these factors, the court concluded that there was no potential specific conflict between the antitrust laws and the securities laws.