Dec. 7 (Bloomberg) -- The U.S. Supreme Court will consider shielding securities firms from antitrust suits, agreeing to review an appeal from investment banks fighting accusations that they rigged initial public offerings.

The justices today said they will hear arguments from 16 investment banks and institutional investors, including Credit Suisse Group, Goldman Sachs Group Inc. and Merrill Lynch & Co. The group wants to overturn a decision by the New York-based 2nd U.S. Circuit Court of Appeals, which said the suits could go forward.

That ruling ``threatens the public offering process'' by limiting the ability of underwriters to work together on initial public offerings, the firms contended in their appeal.

The appeal, which has the partial backing of the Bush administration, seeks immunity for investment banks from antitrust suits over underwriting and other activities heavily regulated by the Securities and Exchange Commission.

A victory for the securities firms might also help other regulated businesses, including the trucking, airline, natural gas and electricity industries, according to University of Iowa antitrust professor Herbert Hovenkamp, who is advising the securities industry in the case.

The case is one of two antitrust disputes the court added to its agenda today, giving it four such cases for its 2006-07 term. The court also agreed to reconsider a 95-year-old antitrust precedent that bars manufacturers and distributors from setting minimum prices for their products at the retail level.

`Epic' Conspiracy Alleged

The decision to hear the IPO fight comes two days after the 2nd Circuit dealt a blow to a separate set of cases that accuse CSFB, Goldman Sachs and dozens of other banks of violating federal securities fraud laws by rigging IPOs. The appeals court said those suits can't go forward as class actions.

In the antitrust dispute, the 2nd Circuit said the suits make allegations of ``an epic Wall Street conspiracy'' to profit at the expense of the investing public by artificially inflating the prices of 800 Internet stocks that had just been offered. The companies allegedly demanded kickbacks from clients and engaged in ``laddering'' -- requiring clients to buy more stock, at higher prices, after the securities were sold to the public.

The defendants also include Citigroup Inc., Morgan Stanley, Lehman Brothers Holdings Inc., Bank of America Corp., Fidelity Investments, Janus Capital Group Inc. and Comerica Inc.

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.

Shield Sought

The dispute, if it goes forward, has the potential to be a multibillion-dollar case, said Christopher Lovell, the lead lawyer for one group of investors. Under federal antitrust law, damages are automatically tripled.

JPMorgan Chase & Co. in April agreed to pay $425 million to settle IPO-rigging claims.

The question for the Supreme Court is the extent to which SEC oversight immunizes the securities industry from antitrust claims. The industry is seeking a shield broad enough to bar the IPO suits, arguing that the SEC specifically authorized companies to work together in syndicates to share the risk of offerings.

The court should ``prevent the securities regulatory scheme from being undermined by antitrust litigation,'' the securities firms argued.

Lawyers for the investors say Congress didn't intend to immunize the type of conduct at issue in the case. They say their suit wouldn't conflict with SEC oversight because the alleged wrongdoing violates the securities laws as well as the antitrust laws.

Administration Stance

``Congress and the SEC have been trying to stop tie-ins and laddering agreements for seven decades,'' Lovell argued in court papers.

The Bush administration's top courtroom lawyer, U.S. Solicitor General Paul Clement, is taking a position that would bar antitrust suits from relying on conduct that is permitted under SEC rules. In the case before the court, that approach would mean the investors couldn't base their suit on the type of underwriter collaboration the SEC specifically permits in its underwriting syndication rules.

Clement says the investors ought to be given the opportunity to redraft their complaints. Still, lawyers for the securities industry say the U.S. position ultimately would require dismissal of the case.

The government ``says you have to disentangle the permitted conduct from the possible nonpermitted conduct and the complaint doesn't do that,'' said Roy Englert, who filed a brief at the high court on behalf of the Securities Industry Association and other business groups.

Compromise Brief

Clement joined the securities firms in urging the court to take up the dispute. His brief, which came at the request of the court, marked a compromise between the SEC, which backed the industry at the lower court level in the case, and the Justice Department's antitrust division, which supported the investors.

Lovell, the investors' lawyer, said he wasn't surprised the justices agreed to hear the case in light of Clement's brief.

``I was somewhat surprised at the solicitor general's position, but after that I'm not surprised,'' he said.

Chief Justice John Roberts didn't take part in the decision to hear the case. Although Roberts didn't give a reason, he owns stock in Citigroup and at least one company, XM Satellite Radio Holdings Inc., that held an IPO during the 1990s.

The justices likely will hear arguments in February or March and will rule by July. The case is Credit Suisse v. Billing, 05- 1157.

To contact the reporter on this story: Greg Stohr in Washington at gstohr@bloomberg.net.

Last Updated: December 7, 2006 14:58 EST