High court to weigh IPO antitrust suit

The Supreme Court agreed Thursday to consider a lawsuit against major Wall Street firms accused of conspiring to manipulate prices on newly issued shares during the stock market boom of the 1990s.

A federal court dismissed the suit brought by investors, but the U.S. 2nd Circuit Court of Appeals reinstated it.

The issue is whether the banks are immune from antitrust liability in this instance because the alleged conduct is permitted under federal securities law.

The investors say the firms colluded to force “tie-ins” on investors, compelling them to pay a premium for highly sought shares in a company. The investors also say they were pressured by the firms into agreeing ahead of time to buy additional shares at a higher price.

In papers filed with the court, lawyers for the Bush administration say the investment banks are incorrect in asserting that implied immunity from antitrust liability shields all conduct relating to new stock offerings.

At the same time, the administration says the appeals court ruling against the Wall Street firms failed to take into account legitimate collaboration between the banks.

The defendants are 16 of the country’s largest underwriters and institutional investors.

The banks said many of the activities alleged in the lawsuit constituted “commonplace underwriter practices” that the Securities and Exchange Commission regulated. The firms said they were being accused of “joining together in syndicates to share the risk of an offering.”

“The SEC, the expert agency charged by Congress with regulating the IPO underwriting process, has advocated immunity from these antitrust actions in the most emphatic terms,” the firms said in asking the Supreme Court to take the case.