Regulators Split Over IPO Lawsuit
The Justice Department and the Securities and Exchange Commission are split over whether a lawsuit accusing investment banks of a conspiracy to rig initial public offerings should be dismissed.
The suit by investors claims that banks, including Credit Suisse Group and Goldman Sachs Group Inc., violated federal antitrust laws by requiring clients who wanted IPO shares to pay kickbacks and buy more stock at higher prices after shares were sold to the public. In August, U.S. District Judge William Pauley, who is weighing the banks’ bid to dismiss the suit, asked the Justice Department and the SEC for their views.
The judge got two divergent opinions in a case that plaintiffs’ lawyers say could result in $1 billion or more in damages for the securities industry. The SEC urged Pauley to dismiss the case, asserting that it has authority over IPOs. The Justice Department said the case shouldn’t be dismissed because the banks have no immunity from civil suits.
Plaintiffs’ lawyers fear that dismissal of this case may give banks blanket immunity from individual civil suits brought under U.S. antitrust laws, a claim the banks deny. “I believe that’s absolutely the logic of their opinion,” attorney Fred Isquith said, referring to the banks.
Pauley hasn’t ruled on the dismissal request, and the banks won’t escape all liability even if he grants it. Another group of suits claims that the way banks granted access to IPO shares violated federal securities laws. The judge in that case will rule on a separate dismissal motion. SEC spokesman John Heine said the agency hasn’t weighed in on the securities case because that judge hasn’t sought the commission’s opinion.
The antitrust suit and the securities suit, both of which seek class-action status, focus on the same alleged conduct.
Hundreds of Internet start-ups were rushed to market during the IPO frenzy of the late 1990s and 2000. First-day gains from IPOs averaged 87% in 1999 and 71% in 2000, according to IPO researcher CommScan, and underwriters pocketed billions of dollars in fees.
A key claim in both cases is that investors seeking IPO shares in companies such as Equinix Inc. and Firepond Inc. were required to buy more stock later on at a higher price. This alleged practice inflated share prices and boosted bank profits, the suit claims. The antitrust case alleges the banks conspired in such practices.
Lawyers for the plaintiffs say damages could reach $1 billion in each case. Under antitrust law, damages are tripled.
