June 18 (Bloomberg) -- The U.S. Supreme Court gave Goldman Sachs Group Inc. and other investment banks a new shield from antitrust claims, throwing out lawsuits that accused the securities industry of rigging 900 initial public offerings.
The justices, voting 7-1, today overturned a federal appeals court ruling that had permitted suits against 16 investment banks and institutional investors, a group that also included Credit Suisse Group and Merrill Lynch & Co. The investors were seeking billions of dollars in damages.
The suits had threatened to roil the IPO business. Wall Street's revenue from stock underwriting has climbed an average 13 percent a year since 1995, reaching a record $19 billion in 2006, and is on pace to surpass that figure this year, based on estimates by Bank of America analyst Michael Hecht. Goldman Sachs had the most revenue from the business, $1.47 billion, according to Hecht, followed by Citigroup Inc., UBS AG, Morgan Stanley and Merrill Lynch.
The antitrust suits ``would have opened up a real hornet's nest,'' said James Cox, a professor of corporate and securities law at Duke University in Durham, North Carolina. ``The practices that were being challenged were a variety of practices that the underwriters customarily follow.''
The high court said an antitrust shield was warranted because the Securities and Exchange Commission regulates IPOs and lays out detailed rules governing what steps underwriters can and can't take. Writing for the court, Justice Stephen Breyer said antitrust suits created ``a substantial risk of injury to the securities markets.''
`Complete Termination'
``Had the court taken the opposite view, the industry would have faced massive legal exposure and a major engine of American growth would have been unnecessarily damaged,'' Marc Lackritz, chief executive officer of the Securities Industry and Financial Markets Association, said in a statement.
Today's ruling is the latest Supreme Court decision to protect companies from class-action claims and other lawsuits. The court last month threw out an antitrust suit alleging collusion by the nation's largest phone companies.
Christopher Lovell, the lead lawyer for the investors at the high court, said the ruling underscores the importance of separate cases that investors are seeking to press against the banks under federal securities laws.
``The court decision is saying that the premise is that the securities laws will redress this,'' Lovell said. ``This puts the focus on the securities cases.''
Too Wide-Ranging
A federal appeals court last year said a securities suit against the industry was too wide-ranging to move forward as a single class action case. The appeals court later said lawyers suing the industry can ask a trial judge for permission to pursue a suit on behalf of a smaller group of investors.
Lovell previously said the antitrust dispute had the potential to be a multibillion-dollar case. Under federal antitrust law, damages are automatically tripled.
``This was a monster, huge case that tried to sue everybody for everything on behalf of all investors,'' said Roy Englert, a Washington lawyer who filed a brief in the case on behalf of the U.S. Chamber of Commerce and SIFMA, as the securities-industry trade group is known.
The antitrust lawsuits said the securities firms profited at the investing public's expense by ensuring that the prices of Amazon.com Inc., EBay Inc. and hundreds of other Internet stocks would soar soon after they began trading publicly.
`Laddering'
The companies were accused of demanding kickbacks from clients and engaging in ``laddering'' -- requiring clients to buy more stock, at higher prices, after the securities were sold to the public.
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 percent in 1999 and 71 percent in 2000, according to IPO researcher CommScan LLC, and underwriters pocketed billions of dollars in fees and commissions.
The defendants also included Citigroup, Morgan Stanley, Lehman Brothers Holdings Inc., Bank of America Corp., Fidelity Investments, Janus Capital Group Inc. and Comerica Inc.
Breyer said antitrust lawsuits were problematic even when focused on conduct forbidden by the SEC. He said that ``only a fine, complex, detailed line'' separates IPO practices encouraged by the SEC -- including the syndicates banks use to share the risk of offerings -- from forbidden conduct.
`Serious Mistakes'
``There is no practical way to confine antitrust suits so that they challenge only activity of the kind the investors seek to target, activity that is presently unlawful and will remain unlawful under the securities law,'' Breyer wrote. ``Antitrust courts are likely to make unusually serious mistakes in this respect.''
Justice Clarence Thomas was the lone dissenter. He said two Depression-era laws that protect investors ``contain broad saving clauses that preserve rights and remedies outside of the securities laws.''
Justice Anthony Kennedy didn't take part in the case.
``We are very pleased with the decision,'' said Stephen M. Shapiro, a Chicago lawyer who represented the investment banks in the case. ``It appears to be a complete termination of this lawsuit.''
The Bush administration largely backed the securities industry in the high court case, though the government said the investors might be able to re-draft their lawsuit to focus only on conduct not permitted by the SEC. The majority went beyond that position and threw out the lawsuits.
$425 Million
John Nester, an SEC spokesman, didn't have any immediate comment. Brookly McLaughlin, a Treasury spokeswoman in Washington, didn't immediately respond to a request for comment.
JPMorgan Chase & Co. last year agreed to pay $425 million to settle IPO-rigging claims. Separately, the issuers have agreed to pay $1 billion, which would be reduced by any sum the investors recover from the underwriters. Both settlements are tentative and still need court approval.
Merrill Lynch is a passive, minority investor in Bloomberg LP, the parent of Bloomberg News.
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