Legal experts are closely watching a lawsuit that has pitched the SEC against the Department of Justice and state regulators, led by New York Attorney General Eliot Spitzer. It calls into question the way the market has always functioned.

The lawsuit claims investors were defrauded during the late 1990s market boom has pitted the U.S. Securities and Exchange Commission against the Department of Justice. U.S. Judge William Pauley III of New York’s Southern District is set to rule on a motion by Citigroup Inc., Goldman Sachs Group, Merrill Lynch & Co. and seven other investment banks to throw out charges that they violated antitrust laws while underwriting initial public offerings.

The suit, filed in 2001, alleges that in exchange for access to hot IPOs, the banks required investors to pay kickbacks and buy more shares in the after-market to artificially boost prices. The banks colluded with each other through the formation of underwriting syndicates, the suit alleges.

Legal experts say Pauley’s decision may help determine whether the SEC has exclusive jurisdiction over securities underwriting, one of Wall Street’s most profitable businesses.

The SEC has thrown its support behind the banks’ effort to have the case thrown out by arguing that the industry is immune from antitrust laws. The DOJ and the New York Attorney General’s office have countered that securities underwriting is regulated by both federal and state antitrust laws.