Opposition Brief — Credit Suisse Securities (USA) LLC v. Billing

Coun. US. ’

, ie" FILED

)

z | APR 4 9 2006

No. 05-1157 | OFFICE OF THE CLERK |

In the Supreme Court of the Anited States

CREDIT SUISSE FIRST BOSTON LTD., ET AL.,

Petitioners,

V.

GLEN BILLING, ET AL.,

Respondents.

On Petition for a Writ of Certiorari to

the United States Court of Appeals

for the Second Circuit

REPLY TO BRIEF IN OPPOSITION FOR

RESPONDENT MILTON PFEIFFER

ROBERT B. MCCAW STEPHEN M. SHAPIRO

LOUIS R. COHEN Counsel of Record

ALI M. STOEPPELWERTH KENNETH S. GELLER

FRASER L. HUNTER, JR. TIMOTHY S. BISHOP

NOAH A. LEVINE MAYER, BROWN, ROWE &

WILMER CUTLER PICKERING MAW LLP

HALE & DORR LLP 1909 K Street, N.W.

399 Park Avenue Washington, D.C. 20006

New York, New York 10022 (202) 263-3000

(212) 230-8800 Attorneys for Petitioner

Attorneys for Petitioner Merrill Lynch, Pierce,

Citigroup Global Markets Inc. | Fenner & Smith Incorporated

Counsel for Petitioners

[Additional Counsel Listed On Signature Page]

ase Re cece ican RP a OE TET

TABLE OF CONTENTS

REPLY TO BRIEF IN OPPOSITION FOR

RESPONDENT MILTON PFEIFFER .............::000eee2e% l

CONCLUSION ....cccccscscccsccscccssccssccsesccccscscossenssssscossssnssosoooes 8

il

TABLE OF AUTHORITIES

Cases: Page

Dura Pharms., Inc. v. Broudo, 125 S. Ct. 1627

SET ciipessphateniindinbtiedintnaniaiauniediiciandsedtecieuialininisnesimeniiniens 7

Gordon v. New York Stock Exch., 422 U.S. 659

ETT cienitcapdeuainestteshdiapiateaniinidbiasiadtncnainisensitelighieecnisibinias 3, 4, 5, 6

Initial Public Offering Sec. Litig., In re,

241 F. Supp. 2d 281 (S.D.N.Y. 2003)..........:cccceeeseeeeeeees 8

Merrill Lynch, Pierce, Fenner & Smith, Inc. v.

aR, THD GS. GR. THe GD cnscccccsscccrsccscseceveccnenes 5,7,8

Silver v. New York Stock Exch., 373 U.S. 341

ITNT easidehdctiialndieldasibtetiadigiainbabaahtanetasemseninisibinnainimeianiiah 5, 6

United States v. National Ass'n of Sec. Dealers,

Re a icrincnectncnnstncnccictteningsinmmenmnionanen 5

Verizon Communications, Inc. v. Law Offices of

Curtis V. Trinko, LLP, 540 U.S. 398 (2004)....... 2, 5, 6, 8

Statute:

BT 6 GD cccccstncnsneccensenntvensscneussnsenesenensvcinmnmnnieceiapenintinen l

Miscellaneous:

Department of Enforcement v. Invemed Associates,

No. CAF030014 (NASD Office of Hearing Officers

Be Fh Fi acccsscnnnstnssunsnineeninsnssinsnsnncinenmemnaunasesnenen 3

HERBERT HOVENKAMP, THE ANTITRUST ENTERPRISE

REPLY TO BRIEF IN OPPOSITION FOR

RESPONDENT MILTON PFEIFFER

This case consolidates two class actions that the Second

Circuit held are not barred by implied immunity. Pet. App.

72a. One suit, Billing, alleges violations of the Sherman Act

by investment banks resulting from their underwriting of

some 900 technology-related IPOs during the market bubble

of the late 1990s. The district court explained that the second

class action, Pfeiffer, brought against investment banks and

some of their institutional customers, challenges the “same

practices” by labelling them as “commercial bribery” under

the Robinson-Patman Act, 15 U.S.C. § 13(c). Jbid. In both

cases the Second Circuit rejected the views of the SEC and

district court and accepted the arguments of the Department

of Justice on the dispositive issue of implied immunity.

Plaintiffs in Billing have waived their response to the peti-

tion. This brief replies to the opposition in Pfeiffer.

Pfeiffer’s perfunctory opposition does not come to grips

with the compelling reasons for review set forth in the peti-

tion and amicus briefs submitted by the National Association

of Securities Dealers, the New York Stock Exchange, and the

Securities Industry Association. Congress placed self-

regulatory organizations like the NASD and NYSE, which

are overseen by the SEC, at “the front line of enforcing com-

pliance” with the securities laws. Brief Amicus Curiae of

NYSE at 6; Brief Amicus Curiae of NASD at 8. Both SROs

have explained there is “an urgent need for this Court to

grant certiorari” because these antitrust suits are “fundamen-

tally inconsistent with the regulatory regime that Congress

established when enacting the securities laws” and threaten

the Nation’s capital markets. NASD Br. 7; NYSE Br. 3-4, 13.

Nor does Pfeiffer seriously address the SEC’s explana-

tion of the need for immunity in this case (Pet. App. 124a-

158a, 180a-198a), or the holdings in NASD, Gordon, and

2

Trinko. He offers no reason why this Court should deny re-

view here when it granted review in NASD and Gordon,

where the SEC likewise contended that immunity was neces-

sary to preserve its regulatory authority, and the Department

of Justice likewise disagreed. Nor does he explain how this

case is less worthy of review than Jrinko where, despite an

antitrust savings clause, this Court recognized that antitrust

suits would improperly disrupt a comprehensive scheme of

regulation. Beyond this, he nowhere disputes petitioners’

showing that the Second Circuit’s ruling conflicts with deci-

sions of several other circuits. Pet. 25-26.

As petitioners and amici have shown, this Court’s inter-

vention is essential to protect the securities regulatory re-

gime, including not only the statutory authority of the SEC

and the SROs that operate under its supervision, but also the

stringent limitations that Congress has imposed on private

securities actions in legislation such as the Private Securities

Litigation Reform Act (PSLRA), which Pfeiffer seeks to by-

pass. Pfeiffer’s contrary contentions are easily refuted.

1. Pfeiffer concedes (at 2) that the Billing plaintiffs attack

the basic elements of the syndicate underwriting process

which are essential to “the capital raising abilities of the

United States financial markets.” Pfeiffer asserts that “[h]is

theory” is different, because he alleges underwriters “paid

bribes to, or received bribes from” institutional investors “to

inflate the price of the hot issue securities in the aftermarket,”

and therefore does not challenge “pre-offer underwriting ac-

tivities.” Jbid. In fact, Pfeiffer’s “bribe” theory is just a re-

hash of the “tie-in” allegations in Billing dressed up in

Robinson-Patman Act terminology. See Pet. App. 75a, 121a.

Pfeiffer admits (at 2) that the Second Circuit “correctly”

characterized his claims. In doing so, the court recounted

Pfeiffer’s allegations of “agreements” that IPO allocants

would divide profits with underwriters by purchasing large

quantities of IPO stock in the aftermarket and by paying “un-

usually large commissions” for transactions in “unrelated se-

3

ae On. Sp 19a-20a)—agreements also alleged by

olaintiffs See id. at 17a-18a. Pfeiffer sim-

vored long-term investors over “flippers.” Id. at 75a, 121a.

That Pfeiffer recharacterizes the Billing plaintiffs’ “te-

ins” as “bribes” makes no difference to the certworthiness of

ments to buy in the aftermarket and to hold rather than “flip”

shares occurred in the midst of heavily-regulated IPOs. The

inquire about a customer's intent to “be a lor term

instead of a “flipper,” stutier Gp cuunans nga @ O>

chase more shares in the aftermarket to build a long-term po-

— See Pet. 3; Pet. App. 224a. Similarly, allegations

Sen and GAEIs eomaene exthetty @un Gorden, <0

U.S. at 681-682), implicating rules that expressly permit an

underwriter to allocate IPO shares to good customers who

generate substantial commissions. See Pet. 8.

Thus, when the conduct Pfeiffer labels as paying and re-

ceiving “bribes” in the aftermarket is viewed in the context of

the underwriting process to which the alleged agreements

relate, the question whether a particular instance is legal will

depend on exactly where that conduct falls under fine lines

that are carefully drawn by expert regulators and “contin-

ual{ly] adjust{ed]” in light of changing conditions. Pet. App.

19Sa. An example of the complex nature of this line-drawing

process is the recent decision of an NASD panel in Depart-

ment of Enforcement v. Invemed Associates, No. CAF030014

(NASD Office of Hearing Officers Mar. 3, 2006). There, an

NASD panel concluded in a 94-page opinion, following a 17-

day hearing, that a member firm had not engaged in illegal

“hot” IPOs. Paunstakingly soviowing cinen s pagmueets

+

writers fom allocating IPO shares to good customers, tha

sion payments to increase the chances of obtaining alloca-

tions, and that no illicit agreements or “bribes” were

involved. As petitioners and the SEC have shown and the

SROs confirm, to have antitrust juries assess defendants’

conduct under “competition first” a

compattonent °° maton antiteenhomid Gamaton®

NASD Br. 7, 9; see NYSE Br. 13.

nity, docs not withstand scrutiny. To be sure, this Court looks

bosarun, honsun, efamebenntiies GeGeanem ie,

part test for congressional intent applied by the court of ap-

exact practice st issue and empowered the SEC to compel

that practice, that the SEC in fact permutted that practice, and

that application of the antitrust laws would moot a

of the securities laws. See Pet. 22-24; NASD Br. 6-7.

SEC and opposed by the Department of Justice—because

pray owype+ ~anenletngetnen Sar thority “to oversee

the fixing of commissio plication of the anti-

trust laws would “render nugatory the legislative provision

for regulatory agency supervision.” 422 U.S. at 688, 691; see

Pet. 20. The district court and the SEC correctly concluded

that Gordon i Goectly sgpticatte hase, where Congress con-

ee ee

of the antitrust laws would create the potential for conflictin

5

standards. See Pet. App. 86a, 193a; NASD Br. 13-17; NYSE

Br. 12-13; see also NASD, 422 U.S. at 724-725, 735 (finding

immunity where Congress empowered the SEC “flexibly” to

address practices it believed were “detrimental,” so that anti-

trust laws created the potential for “inconsistent standards”).

Regulation of the IPO process and aftermarket conduct grow-

ing out of it lies at the heart of the SEC's authority under se-

curities statutes this Court has described as the “ancho[r]” of

“regulation of vital elements of our economy.” Merrill Lynch

v. Dabit, 126 S. Ct. 1503, 1509 (2006).

Tellingly, Pfeiffer does not so much as mention Trinko,

which reaffirms that Gordon and NASD require immunity

when there is a “real possibility of [antitrust] sudgments con-

flicting with the agency's regulatory scheme.” 540 U.S. at

Trinko neverthelees held that the antitrest laws should not be

applied whee Ry jury's judgments are likely to result mn

costly and not outweighed by “the slight benefits of antitrust

intervention” piled on top of other available “litigation

routes”—factors that also support dismissal here. /d. at 406,

414; see Dabit, 126 S. Ct. at 1514 (permitting “parallel class

actions” under “different standards” applied to the same facts

is “wasteful” and “duplicative”); NASD Br. 15; HERBERT

HOVENKAMP, THE ANTITRUST ENTERPRISE 237 (2005).

3. Pfeiffer’s contention (at 4) that no deference is due the

SEC's view that immunity is necessary here is riddled with

errors. Pfeiffer concedes that courts “defer” to expert agen-

cies charged by Congress with regulating the area in ques-

tion. See Gordon, 422 U.S. at 689-690 (deferring to the

SEC’s view that immunity was necessary “[g]iven the exper-

tise of the SEC” and “the confidence the Congress has placed

in the agency”); NASD, 422 U.S. 694 (agreeing with SEC

that immunity was required); Pet. 30. Pfeiffer’s assertion that

this Court should ignore the SEC's considered position be-

cause the SEC “always finds implied repeal” is wrong. The

6

ort ech for examp

Pfeiffer’s assertion (at 4) that Silver held there can be no

athe eaniiien quand f thitete enantio: @ a>

members so there was no “agency check” on the behavior at

issue. 373 U.S. at 359-360. in Gordon and Trinko, even chal-

lenges to practices forbidden under the regulatory scheme

(see 422 U.S. at 679-682, 540 U.S. 1 405-406) were dis-

missed to give the agency sufficient room to regulate.

Pfeiffer’s narrow focus on whether the SEC can permit or

ne i ee oe eee Se eee

owering antitrust juries to determine what IPO conduct is

unlawful would deter beneficial activities that the SEC does

permit. See Pet. 9; Pet. App. 156a, 193a-194a, 197a. The

SBC and HAGD tase quaichad contast Guay Getiove exsmned

practices. Pet. App. 137a-138a, 196a: NASD Br. 12. There is

no reason to think that antitrust juries would draw the line

under the Sherman or Robinscn-Patmen Act ot the some

make antitrust concerns “the predominant considerations in

the underwriting process.” Pet. App. 194a; see NYSE Br. 3,

13 (the threat of treble damages will impair the “abili

SROs and the SEC to develop finely calibrated regulatory

ee ee eee

to HARD, which bas semany sepensBiiy w spss

sight of the SEC, apace estmentine eter A -pame-oy ea

7

DS ey Oe eS

roping) the ocariice markt to the detent of "the

SEC warmed the courts below of the same adverse effects on

the capital markets. Pet. App. 193a-197a (the fear of treble

serve the interests of the markets and the capital formation

process,” “distort{ing] market participant behavior in ways

that are harmful to the overall securities markets”).

snndaeninatiammediieaanaede

SEC’s and NASD’s conclusion that treble damages class ac-

apmactaternmntes cmetmvenyped pail to tte og

rally seek out perceived “deep pockets.” Dura Pharms., "125

S. Ct. at 1633. The risk of treble damages liability for mas-

fal effect securities regulstors have identified and lead to

decision, new class action antitrust complaints have already

missions and musstatemer in securities transactions—the

ic Trading Group v. Banc of America Sec., et al., 06 CV

2859 (S.D.N.Y., complaint filed Apr. 12, 2006) (alleging

conspiracy among numerous broker-dealers to collect con-

cealed commission charges from short sellers, even though

an SEC regulation addressed the practice and suit could have

been filed under the securities laws).

Treble damages antitrust suits are particularly injurious in

the securities area, because Congress in the PSLRA adopted

reforms aimed at ‘Pauaes eC Gs Gasp artinn wees & Eige-

“targeting of deep-pocket defendants” and extraction of “ ex-

canes ou ib oohject Dabit, 126 S. &. at 1510-1511. An

e ries, This Coust secently sejected 2 “nanew

reading” of the Securities Litigation Uniform Standards Act

by the Second Circuit that “undercut the effectiveness” of the

PSLRA. /d. at 1513. The Second Circuit’s narrow interpre

tion of implied immunity law to allow plaintiffs to bypass the

PSLRA’s restrictions by recycling securities claims as anti-

trust violations should suffer the same fate. See JPO Sec.

Litig., 241 F. Supp. 2d 281 (S.D.N.Y. 2003) (securities fraud

suits based on same conduct alleged by Pfeiffer); Trinko, 540

U.S. at 414 (Gemiscal soqueed where “[judicial oversigh

vestment and lead to a new layer of t errr

5. hamaadiets eoew is conatid f Ge fume com

quences identified by petitioners, amici, and the SEC are to

be averted. Absent review, district court judges in the Second

tion industries—will reject implied immunity defenses pre-

sented in motions to dismiss, which cannot be appealed. Only

by withstanding a trial on the merits—consuming tremen-

ing a usually irresistible incentive to settle—could a

defendant again hope 10 bring the issue before this Cour

confirms that this is the time for the Court to review immu-

nity issues critical to “the federal imterest im protecting the

integrity and efficient operation of the market for national

traded securities.” Dabit, 126 S. Ct. at 1509.

ROBERT B. MCCAW

Louls R. COHEN

ALI M. STOEPPELWERTH

FRASER L. HUNTER, JR.

NOAH A. LEVINE

WILMER CUTLER PICKERING

HALE & Dorr LLP

399 Park Avenue

New York, Now York 10022

Citigroup Global Markets

Inc.

ANDREW J. FRACKMAN

RICHARD G. PARKER

BRENDAN DOWD

O”’MELVENY & MYERS LLP

Seven Times Square

New York, New York 10036

(212) 326-2000

STEPHEN M. SHAPIRO

Counsel of Record

KENNETH S. GELLER

Timothy S. BISHOP

MAYER, BROWN, ROWE &

MAw LLP

1909 K Street, N.W.

Washington, D.C. 20006

(202) 263-3000

Attorneys for Petitioner

Merrill Lynch, Pierce,

Fenner & Smith Incorpo-

rated

ANDREW B. CLUBOK

RICHARD A. CORDRAY

BRANT W. BISHOP

STEVEN A. ENGEL

655 15th Street, N.W.

Washington, D.C. 20005

(202) 8 879-5000

New York, New York 10019

(212) 839-5300

Attorneys for Petitioner

RICHARD A. CIRILLO

KAREN R. KOWALSKI!

KING & SPALDING LLP

1185 Avenue of the Americas

New York, New York 10036

(212) 556-2100

Attorneys for Petitioner

Credit Suisse First Boston LLC

Four —— Square

New York, New York 10036

(212) 135-008

MOSES SILVERMAN

PHILP G. BARBER

PAUL, WEISS, RIFKIND,

WHARTON & GARRISON LLP

1285 Avenue of the Americas

New York, New York 10019

(212) 373-3000

Attorneys for Petitioner

Lehman Brothers Inc.

JON R. ROELLKE

JEFFREY H. DRICHTA

CLIFFORD CHANCE US LLP

2001 K Street, N.W.

Washington, D.C. 20006-1001

(202) 912-5000

Attorneys for Petitioner

Merrill Lynch, Pierce,

Fenner & Smith Incorporated

PAUL GONSON

GLENN R. REICHARDT

KIRKPATRICK & LOCKHART

NICHOLSON GRAHAM LLP

1601 K Street, N.W.

Washington, D.C. 20006

(202) 778-9000

Attorneys for Petitioner

Merrill Lynch, Pierce,

Fenner & Smith Incorporated

GANDOLFO V. DIBLASI

PENNY SHANE

DAVID M.J. REIN

RICHARD J.L. LOMUSCIO

SULLIVAN & CROMWELL LLP

125 Broad Street

New York, New York 10004

(212) 558-4000

Attorneys for Petitioners

The Goldman Sachs Group,

Inc. and Goldman, Sachs &

Co.

RANDY M. MASTRO

JOHN A. HERFORT

RICHARD FALEK

GIBSON, DUNN & CRUTCHER

LLP

200 Park Avenue

New York, New York 10166

(212) 351-4900

Attorneys for Petitioner

Bear, Stearns & Co., Inc.

STEVEN WOLOWITZ

MATTHEW INGBER

MAYER, BROWN, ROWE &

MAW LLP

1675 Broadway

New York, New York 10019

(212) 506-2500

Attorneys for Petitioner

Comerica, Inc.

GERALD J. FIELDS

KEVIN C. LOGUE

PAUL HASTINGS JANOFSKY

& WALKER LLP

75 East 55th Street

New York, New York 10022

(212) 318-6000

Attorneys for Petitioners

Van Wagoner Capital

Management, Inc. and Van

Wagoner Funds, Inc.

DAVID W. ICHEL

JAYMA M. MEYER

SIMPSON THACHER &

BARTLETT LLP

425 Lexington Avenue

New York, New York 10017

(212) 455-2000

Attorneys for Petitioner

J.P. Morgan Securities Inc.

APRIL 2006

JOHN D. DONOVAN, JR.

ROBERT G. JONES

ROPES & GRAY LLP

One International Place

Boston, Massachusetts 02110

(617) 951-7000

Attorneys for Petitioners

Fidelity Distributors Corp.,

Fidelity Brokerage Services

LLC, and Fidelity

Investments Institutional

Services Co., Inc.

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