U.S. Supreme Court Rules That Much of Initial Public Offering (IPO) Process Exempt From Antitrust Law

September 1, 2007 | Roger McEowen


In this case, 60 investors were joined in two class actions on a claim that federal and state antitrust law applied to the conduct of 16 of the nation’s largest underwriters of stock designed to control the initial issuance and post-IPO trading in the stocks of several hundred high-tech companies.  The alleged conduct involved a conspiracy among the defendants to drive up prices on 900 newly issued stocks during the dotcom bubble of the late 1990s.  Specifically, the lawsuits complained of a pact among the underwriters not to sell shares of popular tech stocks unless a buyer agreed to buy added shares of those securities in the after-market at higher prices – so called “laddering”; to pay very high commissions on later stock purchases from the underwriters, or to buy from those underwriters other, less desirable stocks - so-called “tying.”  However, the Court ruled that the targeted activity is central to the proper functioning of well-regulated capital markets.  As such, the Court believed that the application of antitrust law to the conduct at issue posed a substantial risk of injury to securities markets.  The Court also expressed its concern that judges and juries lacked the sophistication about the markets necessary to avoid making “unusually serious mistakes” when applying antitrust law in this context.  Credit Suisse Securities v. Billing, 127 S. Ct. 2383 (2007).