Supreme Court ruling limits investors’ antitrust

July 2, 2007

Last month’s U.S. Supreme Court’s ruling that blocks investors from suing Wall Street investment banks under antitrust laws could save Wall Street firms a bundle by limiting investors to smaller recoveries.

In a case dating back to the dot-com bubble, the high court ruled Monday that antitrust suits would pose a “substantial risk” to the securities market. Damages in antitrust cases are tripled, in contrast to penalties under the securities laws.

The ruling struck down a lower court decision that would have allowed investors to go after Wall Street firms that they say engaged in anti-competitive practices by conspiring to drive up prices on about 900 newly issued stocks in the late 1990s.

Because the well-documented implosion of names like Enron Corp. swallowed any serious money that investors might hope to recover from that and other flame-outs, some investors have turned to the banks and other Wall Street regulars such as accounting firms that did work for such companies.

“The fact that these antitrust cases have been thrown out on these grounds I think will send a high profile message to would-be plaintiffs who were thinking of bringing antitrust claims in the securities context,” said Wesley Powell, an antitrust lawyer with Hunton & Williams in New York.

Lawyers for investment banks say the difference between legal and illegal activity is a highly technical matter that must be left to highly trained securities regulators to decide, rather than to courtroom juries.

Powell noted that not only do those pressing claims under securities laws not have the triple damages awarded in antitrust cases, but such claims also have to meet a higher legal burden than claims made under antitrust laws.

Topics Legislation

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