Supreme Court Ruling Limits Investors’ Antitrust Claim Recoveries

June 20, 2007

This week’s U.S. Supreme Court’s ruling that blocks investors from suing Wall Street investment banks under antitrust laws could save Wall Street firms a bundle by limiting investors to smaller recoveries.

In a case dating back to the dot-com bubble, the high court ruled Monday that antitrust suits would pose a “substantial risk” to the securities market. Damages in antitrust cases are tripled, in contrast to penalties under the securities laws.

The ruling struck down a lower court decision that would have allowed investors to go after Wall Street firms that they say engaged in anticompetitive practices by conspiring to drive up prices on about 900 newly issued stocks in the late 1990s.

Because the well-documented implosion of names like Enron Corp. swallowed any serious money that investors might hope to recover from that and other flame-outs, some investors have turned to the banks and other Wall Street regulars such as accounting firms that did work for such companies.

“In some ways it’s sort of restating the standards announced 25 to 30 years ago,” said Wesley Powell, an antitrust lawyer with Hunton & Williams in New York. “The fact that these antitrust cases have been thrown out on these grounds I think will send a high profile message to would-be plaintiffs who were thinking of bringing antitrust claims in the securities context.”

Lawyers for investment banks say the difference between legal and illegal activity is a highly technical matter that must be left to highly trained securities regulators to decide, rather than to courtroom juries. In its 7-1 ruling, the Supreme Court found that antitrust courts were likely to make serious mistakes.

Powell noted that not only do those pressing claims under securities laws not have the triple damages awarded in antitrust cases, but such claims also have to meet a higher legal burden than claims made under antitrust laws.

“Other defendants in these cases are going to seize on this to try to get the cases dismissed on the basis of this case,” he predicted.

Investors have accused the Wall Street firms of dangling shares of in-demand initial public offerings to favored investors who agreed to later buy additional shares at higher prices. Investors said the average price increase on the first day of trading was more than 70 percent from 1999 to 2000, a jump 8 1/2 times the level seen from 1981 to 1996.

A group representing Wall Street banks praised the court’s decision.

“If this case had gone the other way, the resulting uncertainty and increased risk would have had negative and wide-ranging consequences for underwriters and issuers, increasing costs to investors and roiling the capital markets, to the detriment of the whole economy,” Travis Larson, a spokesman for the Securities Industry and Financial Markets Association, said in a statement.

The 17 companies named in the lawsuit before the court Monday included Credit Suisse Securities (USA) LLC, formerly Credit Suisse First Boston LLC; Bear, Stearns & Co.; Citigroup Global Markets Inc.; Goldman, Sachs & Co.; and Morgan Stanley & Co..

The case is Credit Suisse v. Billing, 05-1157.


Associated Press Writer Pete Yost in Washington contributed to this report.

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