Supreme Court Considers Antitrust Immunity in Securities Law Case

This posting was written by John Scorza, CCH Washington Correspondent.

The U.S. Supreme Court on March 27 heard oral arguments on the issue of whether an alleged conspiracy in the securities industry should be subject to the federal antitrust laws or subject only to the federal securities laws.

At issue is a decision of the U. S. Court of Appeals in New York City (2005-2 Trade Cases ¶74,943), holding that an antitrust action against the nation’s leading underwriters for engaging in anticompetitive conduct with respect to initial public offerings (IPOs) should not have been dismissed on implied immunity grounds. The investors claim that the underwriters conspired in a number of ways to artificially inflate the price of securities in IPOs.

Laws Suited to Regulate Practices

The underwriters maintain that the securities laws, not the antitrust laws, should apply. They argue that the securities laws are best suited to regulate the practices at issue. Their lawyer, Stephen Shapiro, addressed the court. “The pivotal question in this case is whether this court’s decisions in [past cases] require implied antitrust immunity... And we submit that the answer is yes.”

The Securities Exchange Acts of 1933 and 1934 were enacted to regulate IPOs and alleged market manipulation, Shapiro said. The SEC has implemented detailed regulations applicable to syndicated underwriting, which is “inherently concerted action.” In fact, the SEC is drafting new rules covering the conduct involved in this case.

Shapiro suggested that the SEC should be given deference to enforce its rules and that application of the antitrust laws would complicate the SEC’s regulatory scheme.

Collaborative Conduct "Innocuous"

The federal government joined the case on behalf of Shapiro’s clients. U.S. Solicitor General Paul D. Clement observed that the kind of collaborative conduct that would normally raise red flags in the antitrust context “is innocuous, because it’s a hallmark of the underwriting process.”

While the SEC makes certain conduct (like tie-ins and laddering) unlawful, “very closely related conduct is not only permissible, but is considered beneficial to the capital formation process,” the Solicitor General explained.

Immunity Disfavored

The lawyer for the investors, Christopher Lovell, said the Court previously has determined that implied antitrust immunity is not favored and should be applied only to the minimum extent necessary. Lovell argued that the securities laws are inadequate to address the widespread conduct being alleged.

“[T]he securities laws are transactional. They can't get at a big wrong like this,” Lovell told the court. The antitrust laws, on the other hand, have the reach necessary to deal with these larger issues, he said.

The case is Credit Suisse Securities (USA) LLC v. Billings, No. 05-1157, cert granted December 7, 2006.