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New York�Two class actions claiming that 10 investment banks violated antitrust laws while underwriting initial public offerings (IPOs) during the late 1990s stock market boom have been thrown out by a federal judge. Finding that the conduct alleged by the plaintiffs is impliedly immune from antitrust scrutiny, Southern District of New York Judge William H. Pauley granted a motion to dismiss the suits made by Citigroup Inc., Goldman Sachs Group, Merrill Lynch & Co. and seven other investment banks. “Any other result would force the defendants to navigate the Scylla of securities regulation and Charybdis of antitrust law,” the court wrote. In re Initial Public Offering Antitrust Litigation, nos. 01 Civ. 2014 and 01 Civ. 11420. The suits, filed in 2001, alleged that the banks forced investors to pay kickbacks and buy more shares in the after-market�a now-infamous practice known as “laddering”�to pump up artificially prices of hot IPOs. The banks colluded with one another through underwriting syndicates in violation of the Sherman Act, the main federal antitrust statute, as well as various state antitrust laws, the plaintiffs alleged. Regulation exemption The court made its finding under the doctrine of implied immunity, a somewhat obscure principle that exempts anti-competitive conduct in the securities arena if Congress has given a government agency the power to regulate the conduct. The 67-page decision helps cement the position of the Securities and Exchange Commission (SEC) that it has exclusive jurisdiction over securities underwriting. At the same time, the court rejected arguments by the U.S. Department of Justice and the New York state attorney general’s office that securities underwriting is regulated by both federal and state antitrust laws. All three agencies had submitted amicus briefs in the case. Pauley’s decision follows two recent rulings by the 2d U.S. Circuit Court of Appeals that clarified the implied immunity doctrine in the context of the interrelationship between securities regulation and antitrust laws. Strong signal In those decisions, the 2d Circuit sent a strong signal that it was disinclined to permit private antitrust suits against players in the securities industry. In re Stock Exchanges Options Trading Antitrust Litigation, 317 F.3d 134 (2003), and Friedman v. Solomon/Smith Barney Inc., 313 F.3d 796 (2002). In those two rulings, the 2d Circuit extended implied immunity to cover situations in which future SEC regulation could potentially be in conflict with the antitrust laws and expose defendants to inconsistent mandates. Taking up the 2d Circuit’s mantle, Pauley found that the SEC, “through application of its broad regulatory authority over the spectrum of conduct related to securities offerings, is empowered to regulate the conduct alleged by the . . . plaintiffs. “It is this sweeping power to regulate that spawns the potential conflict with the antitrust laws that . . . requires a finding of implied immunity,” Pauley wrote for the court. A parallel group of lawsuits alleging securities fraud by 55 investment banks for IPO practices is pending before Judge Shira Scheindlin of the Southern District of New York. During the summer, 300 technology companies that were defendants in those suits settled the plaintiffs’ claims for $1 billion. Within the past two weeks, Pauley approved a $1.4 billion settlement of charges by New York State Attorney General Eliot Spitzer that Wall Street banks gave biased stock ratings during the high-tech boom.


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