News

S.Ct. decides securities/antitrust case

News Brief
June 18, 2007

By Cydney Posner

The article below from the WSJ reports on the Supreme Court's decision today that conduct that is regulated extensively under the federal securities laws is immune from liability under federal antitrust laws. The antitrust class action against several Wall Street firms related to alleged efforts by the firms to illegally pump up stock prices on IPOs during the 1990s tech bubble. Specifically, the issue was whether deals between investment banks and securities firms that required the purchase of additional securities in the aftermarket to support new stock offerings were "tie-in agreements" prohibited under the antitrust laws.

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Justices Rule Against Investors

In Wall Street Antitrust Case

By MARK H. ANDERSON

June 18, 2007 10:24 a.m.

WASHINGTON -- The U.S. Supreme Court Monday ruled 7-1 that several Wall Street firms are immune from a class-action lawsuit brought under federal antitrust laws over alleged conduct on initial public offerings during the 1990s technology bubble.

The high court, in an opinion by Justice Stephen Breyer, ruled that the breadth of federal securities regulation prevents the antitrust suit. "We must interpret the securities laws as implicitly precluding the application of the antitrust laws to the conduct alleged in this case," Justice Breyer said in the majority ruling.

The decision reverses a 2nd U.S. Circuit Court of Appeals holding that allowed the antitrust lawsuit to move forward. A number of top Wall Street firms were named in the case, including Credit Suisse First Boston, a unit of Credit Suisse Group; Bear Stearns & Co., a unit of Bear Stearns Cos.; Citigroup Global Markets Inc., a unit of Citigroup Inc.; Goldman Sachs & Co., a unit of Goldman Sachs Group Inc.; J.P. Morgan Securities Inc., a unit of JPMorgan Chase & Co.; Lehman Brothers Inc., a unit of Lehman Brothers Holdings Inc.; Merrill Lynch Pierce Fenner & Smith, a unit of Merrill Lynch & Co.; and Morgan Stanley & Co., a unit of Morgan Stanley.

The antitrust suit accused the firms of illegally pumping up prices on IPOs and profit margins during the late 1990s technology bubble. Under federal antitrust laws, the companies could have faced tripled damages if the lawsuit was allowed.

At issue was whether tie-in agreements -- deals between investment banks and securities firms that require the purchase of additional securities in after-market trading of new stock offerings -- amounted to antitrust violations that can support a private antitrust lawsuit. The investors who brought the lawsuit allege such agreements created stacks of stock purchases that artificially drove up the price and margin on hot new stocks.

After dismissal of a broad array of claims by a federal trial court, the Second Circuit, based in New York, revived claims on tie-in agreements after a U.S. District Court dismissed the lawsuit.

Justice Clarence Thomas dissented from the majority. Justice Anthony Kennedy recused himself from the case.

The case was Credit Suisse First Boston Ltd. v. Billing.

Also Monday, the court ruled that passengers, like drivers, have a constitutional right to challenge the legality of police decisions to stop cars in which they are traveling.

Bruce Brendlin was convicted of drug possession after a sheriff's deputy stopped a car in which he was a passenger in Yuba City, Calif., in 2001. Mr. Brendlin was wanted for a parole violation, although the deputy who ordered the car to pull over didn't know beforehand that Mr. Brendlin was in the vehicle.

Mr. Brendlin appealed his conviction, arguing that the drug evidence should be suppressed because it was found as the result of an illegal stop. The state has since conceded there was no basis to stop the car. But California also argued that Mr. Brendlin's conviction should stand because only the driver was covered by the Fourth Amendment's protections against unreasonable searches and seizures.

Justice David Souter, writing for a unanimous court, disagreed. "A traffic stop necessarily curtails the travel a passenger has chosen just as much as it halts the driver," Justice Souter said.

The American Civil Liberties Union and the NAACP backed Mr. Brendlin, arguing that a ruling in the state's favor would encourage police to conduct arbitrary traffic stops to target passengers, especially minorities, who lack the same rights as drivers.

Most state and federal courts already permit challenges by passengers. California, Colorado and Washington state do not. The case is Brendlin v. California.

--The Associated Press contributed to this article.

Write to Mark H. Anderson at mark.anderson@dowjones.com

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