Friedman v. Salomon/Smith Barney, Inc.

Retail investors (plaintiffs) brought suit, alleging that Salomon/Smith Barney, Inc. and others (collectively, underwriters) (defendants) violated antitrust law by discouraging them from flipping in-demand securities received in a syndicated initial public offering (IPO). Flipping is the practice by which purchasers of stock in an IPO (which typically is priced below market value) quickly sell newly acquired shares. Flipping poses a challenge to underwriters because, if done in great numbers, it can flood the market and depress the stock price. The underwriters sought to combat flipping by punishing members of an underwriting syndicate whose customers engaged in flipping. In turn, syndicate members tried to stop flipping by punishing retail investors who engaged in the practice by depriving them of the opportunity to participate in future IPOs. The underwriters moved to dismiss the complaint, arguing that they enjoyed implied immunity from antitrust law because the regulatory scheme created by Congress and the Securities and Exchange Commission (SEC) permitted their stabilization actions. The retail investors responded that implied antitrust immunity does not shield IPO-related price stabilization and that, even if it generally does, it did not here because the underwriters’ specific tactics differed from those the SEC previously approved.