High court receptive to Wall Street firms' appeal

By Peter Kaplan

WASHINGTON (Reuters) - U.S. Supreme Court justices on Tuesday voiced doubts about whether an antitrust case should proceed against Wall Street underwriters for the pricing of initial public stock offerings (IPOs).

Big investment banks including Credit Suisse Group (CSGN.VX), J.P. Morgan Chase & Co. (JPM.N), Merrill Lynch & Co. Inc. MER.N and Morgan Stanley (MS.N) are challenging a ruling by a federal appeals court in New York, which reinstated a lawsuit by buyers of Internet and technology stock issues in the late 1990s.

The lawsuit accused the big banks of conspiring to impose anti-competitive charges on prospective buyers and inflating share prices in the post-IPO aftermarket for some 900 initial public offerings.

Several Supreme Court justices were receptive to the argument that underwriters and institutional investors should be at least partly immunized from antitrust lawsuits, because some competition issues are better left for the Securities and Exchange Commission, which already regulates underwriters.

"The problem is that, of course, these people are to some extent under the securities laws in the business of fixing prices. They get together as a syndicate, and say, 'Well, you have to figure out what price we're going to charge for this initial public offering'," said Chief Justice John Roberts.

"How is a district court supposed to say, 'Well, this is the bad price fixing, this is the good price fixing?" Roberts asked.

LEGAL TEST NOT EASY

The justices struggled to come up with a legal test that would distinguish a potential antitrust violation that should be tried in the courts from a defensible underwriting practice that should be scrutinized by the SEC.

Justice Stephen Breyer said the justices were worried that the fear of a protracted antitrust lawsuit could discourage legitimate underwriting practices.

"That's what's concerning," Breyer said.

A federal judge dismissed the class action lawsuit on the grounds that federal securities laws preempt federal and state antitrust laws. The judge said the U.S. Securities and Exchange Commission has the power to regulate the conduct alleged in the suit.

But the appeals court disagreed. It ruled there was no evidence that Congress intended to repeal the antitrust laws and immunize "tie-in" agreements on IPOs.

Other well-known Wall Street banks involved in the lawsuit include units of Bear Stearns Cos. Inc. BSC.N; Citigroup (C.N); Fidelity Investments; Goldman Sachs Group Inc. (GS.N); and Janus Capital Group Inc. (JNS.N)

The Justice Department filed a brief in the case, arguing that the firms were not entitled to the sweeping immunity they advocated but warning that the appeals court ruling "could chill legitimate activity in our nation's vitally important financial markets."