Court hands US banks victory on IPOs
Court hands US banks victory on IPOs
By Patti Waldmeir in Washington and Ben White in New York
Copyright The Financial Times Limited 2007
Published: June 18 2007 22:04 | Last updated: June 18 2007 22:04
The US Supreme Court on Monday shielded US investment banks from investors seeking to use anti-trust laws to challenge underwriting practices that became widespread during the technology stock bubble of the late 1990s.
In a 7-1 ruling the judges refused to let the investors sue 16 investment banks and institutional investors, including Credit Suisse, Goldman Sachs and Merrill Lynch, for allegedly working together to inflate the price of listings of some technology stocks before dumping them on an unsuspecting public.
The ruling in the case, Credit Suisse v Billing, was highly anticipated because had it been allowed to go forward, banks would have faced the prospect of paying treble damages on claims brought under anti-trust laws. It would also have given plaintiffs lawyers a weapon to attack Wall Street in addition to traditional securities fraud suits.
The lawsuit attacked the practice known as “laddering,” in which banks required recipients of shares in initial public offerings to buy more stock on the open market, creating the appearance of heavy demand.
The banks said they should not have to face antitrust lawsuits over such offerings because the Securities and Exchange Commission authorised them to work together in syndicates to share risk and regulated the process.
The US Chamber of Commerce welcomed the ruling, saying that “getting it wrong would have caused significant harm to our capital markets”.
Justice Stephen Breyer, writing for the majority, appeared to agree with corporate America: “An antitrust action in this context is accompanied by a substantial risk of injury to the securities markets,” he wrote. Investors can get redress under the securities laws, he said, and should not need to resort to the anti-trust laws.
“The SEC actively enforces the rules and regulations that forbid the conduct in question,” Justice Breyer wrote.
Paul Kaplan, a securities law expert at the law firm Bryan Cave, said, “The ruling is a vote of confidence in the SEC’s ability to distinguish what is forbidden and what is allowed under the securities law for IPO underwriting.”
The ruling is the latest Supreme Court decision protecting US companies from securities lawsuits. The Court is expected to rule within a week on another case testing the standard investors must meet when alleging securities fraud.
Monday’s ruling “may leave investors without a remedy from the shenanigans that accompanied the selling of securities during the high tech bubble” said Tom Dubbs of Labaton Sucharow, a leading plaintiffs’ securities class-action firm.
By Patti Waldmeir in Washington and Ben White in New York
Copyright The Financial Times Limited 2007
Published: June 18 2007 22:04 | Last updated: June 18 2007 22:04
The US Supreme Court on Monday shielded US investment banks from investors seeking to use anti-trust laws to challenge underwriting practices that became widespread during the technology stock bubble of the late 1990s.
In a 7-1 ruling the judges refused to let the investors sue 16 investment banks and institutional investors, including Credit Suisse, Goldman Sachs and Merrill Lynch, for allegedly working together to inflate the price of listings of some technology stocks before dumping them on an unsuspecting public.
The ruling in the case, Credit Suisse v Billing, was highly anticipated because had it been allowed to go forward, banks would have faced the prospect of paying treble damages on claims brought under anti-trust laws. It would also have given plaintiffs lawyers a weapon to attack Wall Street in addition to traditional securities fraud suits.
The lawsuit attacked the practice known as “laddering,” in which banks required recipients of shares in initial public offerings to buy more stock on the open market, creating the appearance of heavy demand.
The banks said they should not have to face antitrust lawsuits over such offerings because the Securities and Exchange Commission authorised them to work together in syndicates to share risk and regulated the process.
The US Chamber of Commerce welcomed the ruling, saying that “getting it wrong would have caused significant harm to our capital markets”.
Justice Stephen Breyer, writing for the majority, appeared to agree with corporate America: “An antitrust action in this context is accompanied by a substantial risk of injury to the securities markets,” he wrote. Investors can get redress under the securities laws, he said, and should not need to resort to the anti-trust laws.
“The SEC actively enforces the rules and regulations that forbid the conduct in question,” Justice Breyer wrote.
Paul Kaplan, a securities law expert at the law firm Bryan Cave, said, “The ruling is a vote of confidence in the SEC’s ability to distinguish what is forbidden and what is allowed under the securities law for IPO underwriting.”
The ruling is the latest Supreme Court decision protecting US companies from securities lawsuits. The Court is expected to rule within a week on another case testing the standard investors must meet when alleging securities fraud.
Monday’s ruling “may leave investors without a remedy from the shenanigans that accompanied the selling of securities during the high tech bubble” said Tom Dubbs of Labaton Sucharow, a leading plaintiffs’ securities class-action firm.
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