When Antitrust And Securities Laws Collide: Well, The Securities Laws Win

Credit Suisse Securities (USA) LLC v. Billing, 551 U.S.  264 (2007), was an antitrust action against underwriting firms that marketed and distributed shares in initial public offerings. The plaintiffs in that case

alleged that the underwriters unlawfully agreed with one another that they would not sell shares of a popular new issue to a buyer unless that buyer committed (1) to buy additional shares of that security later at escalating prices (a practice called “laddering”), (2) to pay unusually high commissions on subsequent security purchases from the underwriters, or (3) to purchase from the underwriters other less desirable securities (a practice called “tying”). The U.S. Supreme Court ruled that federal securities law implicitly precluded application of the antitrust law to the underwriters’ alleged anticompetitive conduct. Now, the U.S. Court of Appeals for the Second Circuit has decided a case that applies the Supreme Court’s analysis to another antitrust law-securities law battle. And, the securities laws came out on top. 

The Second Circuit’s decision, In re Short Sale Antitrust Litig., 08-0420-cv (2d Cir. Dec. 3, 2009), was a putative class action in which the plaintiff Electronic Trading Group, LLC, a short seller, sued certain financial institutions that serve as “prime brokers” in short sale transactions. The plaintiff alleged that the prime brokers arbitrarily designated certain securities as hard to-borrow and then fixed the price for borrowing them, in violation of Section 1 of the Sherman Act. The U.S. District Court for the Southern District of New York dismissed the antitrust claim with prejudice on the ground of implied preclusion of the antitrust law by the securities law. The Second Circuit affirmed, concluding that antitrust liability would create actual and potential conflicts with the securities regime.
 
Attorneys involved in the case include: ANDREW J. ENTWISTLE, VINCENT R.CAPPUCCI, HAROLD F. McGUIRE,JR., ARTHUR V. NEALON, and STEPHEN D. OESTREICH, Entwistle & Cappucci, for Electronic Trading Group; ROBERT F. WISE, JR., and WILLIAM J. FENRICH, Davis Polk & Wardwell, for Morgan Stanley; RICHARD H. KLAPPER and RICHARD C. PEPPERMAN, II, Sullivan & Cromwell, for Goldman Sachs; STEPHEN L. RATNER and HARRY FRISCHER, Proskauer Rose, for Bear Stearns; JAY B. KASNER and SHEPARD GOLDFEIN, Skadden Arps, for Merrill Lynch; JAY P. LEFKOWITZ, MARIA GINZBURG, ANDREW B. CLUBOK,SUSAN E. ENGEL, and ELEANOR R. BARRETT, Kirkland & Ellis, for UBS Financial Services, Inc.; ROBERT B. McCAW, FRASER L. HUNTER, JR., and ALI M. STOEPPELWERTH, Wilmer Cutler, for Citigroup and Credit Suisse; ANDREW J. FRACKMAN and BRENDAN J. DOWD, O’Melveny & Myers, for Banc of America Securities; GREGORY A. MARKEL and MARTIN L. SEIDEL, Cadwalader, Wickersham & Taft, for Deutsche Bank Securities, Inc.; DANIEL B. RAPPORT, KATHERINE L. PRINGLE, and LISA S. GETSON, Friedman Kaplan Seiler & Adelman, for Van Der Moolen Specialists USA; JONATHAN D. POLKES, ROBERT F. CARANGELO, and DEBRA J. PEARLSTEIN, Weil, Gotshal & Manges, for CIBC World Markets Corp.