The Credit Suisse Decision and U.S. Financial Markets

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Jul 31, 2007

This article was previously published in The Daily Deal. It is reprinted here with permission.

A recent U.S. Supreme Court decision could help bolster America’s standing as a competitive location for capital formation. Or at the very least, the decision has forestalled the onslaught of plaintiff antitrust claims against Wall Street’s IPO underwriting process.

In a 7-1 vote, the U.S. Supreme Court held in Credit Suisse Securities (USA) LLC v. Billing that the securities laws implicitly precluded application of the antitrust laws to the practice of tying the sale of IPO shares to the sale of less desirable shares in the aftermarket and “laddering” the sales of such shares.

In the case, a group of investment banks including Goldman Sachs, Merrill Lynch, Morgan Stanley, Citigroup, J.P. Morgan, and others petitioned the Court to reverse the Second Circuit Court of Appeals and grant implied antitrust immunity to their IPO underwriting process, which investors complained violated the Sherman Act. The respondent investors argued that a horizontal conspiracy was entered into among the investment banks to create pools of orders to drive up the price of less attractive shares in the aftermarket. Tie-ins between allocation of shares in the IPO and purchases of stock in the aftermarket and laddering agreements both made this possible.

The investors brought a class action suit in U.S. District Court,…

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