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DOJ Initiates Antitrust Probe of Underwriters’ Standard 7% IPO Fee

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The United States Department of Justice ("DOJ") announced on April 30, 1999 that its antitrust division has commenced an investigation into possible collusion among securities' underwriters to fix their fees for initial public offerings ("IPOs") at 7%. The DOJ would not confirm how many or which firms were targets of the probe, but several leading firms have publicly confirmed that they have been approached by the DOJ to answer questions in connection with their fee-setting structure.

The DOJ investigation follows a civil class action lawsuit that was filed in the United States District Court for the Southern District of New York on November 3, 1998 alleging that 25 firms have engaged in a price-fixing conspiracy for IPO fees in violation of Section 1 of the Sherman Act. That lawsuit, which has since been consolidated with two others, parrots the findings of a November 1998 study that reported that a 7% fee was charged in 95% of the 1,041 mid-sized IPOs ranging between $20 million and $80 million that were filed from 1995 through 1997. The complaint avers that the statistical likelihood of this occurring in a "free market" is "exceedingly low," and could not exist in the absence of collusion. Motions to dismiss the consolidated actions are pending. *

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