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BFCSA: Video conference call at heart of criminal cartel case against ANZ

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Video conference call at heart of criminal cartel case against ANZ

Australian Financial ReviewJun 3 2018 11:00 PM

Patrick Durkin

 

EXCLUSIVE  A recorded video conference call involving ANZ Bank's group treasurer Rick Moscati and investment banks JPMorgan, Deutsche and Citigroup, following the bank's $2.5 billion capital raising in 2015, is expected to form the heart of the Australian Competition and Consumer Commission's case against the banksfor allegedly striking a criminal cartel.

Senior bankers from ANZ, Deutsche Bank AG and Citigroup Global Markets Australia expect to be served with criminal cartel charges as early as Monday or Tuesday and face court as early as Friday, where they are expected to plead not guilty in the first hearing of the landmark case. JPMorgan is believed to have been granted immunity in the case after self-reporting the issue to the ACCC.

The Australian Financial Review understands the conference call between ANZ and its investment bankers reveals the parties negotiating how 25.5 million shares worth $789.2 million, which failed to find buyers during the capital raising, would be sold into the market in order to minimise any downside risk to ANZ's share price.

Who sells what and when

ANZ shares suffered their biggest one day fall in seven years on Friday, August 7, 2015, the day after it resumed trading following the announcement of the $3 billion capital raising. The raising included a $2.5 billion placement with institutional investors and $500 million from retail investors through a share purchase plan.

The recorded discussion is believed to include how the 25.5 million ANZ shares would be sold over a period of time, not lower than a certain price and how the sales would be timed.

It is believed the ACCC will allege the cartel conduct related to "an arrangement or understanding" allegedly struck between ANZ and its investment banks under laws that prohibit "controlling the output or limiting the amount of goods and services" available to buyers.

Despite ANZ claiming the the shortfallrepresented just 0.91 per cent of the bank's total shares on issue, experts said that the size of the shares allegedly controlled or limited is not a factor in determining any illegal cartel conduct.

Under the cartel laws, which became a criminal offence in 2009, executives can face jail terms of up to 10 years if found guilty and company fines of $10 million or up to 10 per cent of their turnover, or three times the profit gained.

Sources said another key aspect of the ACCC's case was the ANZ's announcement on August 2015 that "the placement of approximately 80.8 million ANZ ordinary shares at the price of $30.95 per share" had been "completed" without disclosing to the market that 25.5 million shares had failed to find buyers.

Financial markets rocked

The unprecedented case – the first criminal cartel case in Australia against a listed company and its executives – has rocked financial markets, but ANZ said it would stand by its group treasurer as it fights the case.

"It's early days so our focus is on supporting Rick [Moscati] and as we said last week we will be defending Rick and the company. Rick was already transitioning to a new role as chief risk officer and at this stage there is no change," an ANZ spokesman said on Sunday.

The Commonwealth Director of Public Prosecutions alerted the parties late on Thursday that it intended to bring the charges, following which ANZ made an announcement to the stock market early on Friday.

The Financial Review understands the parties are yet to be served with the CDPP needing to have a summons issued by a local court. It is not clear if the summons will be issued in the Melbourne Magistrates Court, where ANZ is based, or in Sydney where Deutsche and Citigroup are based. But experts predict the case may ultimately be moved to the Federal Court of Australia.

The case has triggered alarm over the weekend with financial market players claiming such agreements have been common place within underwriting syndicates for decades. The banks are concerned both that their top executives face jail time and the size of the potential fines, which for ANZ could be more than $2 billion, despite ANZ, Deutsche and Citigroup insisting they did nothing wrong.

"The allegations involve an area of financial markets activity that has not been considered by any Australian court or addressed in any regulatory guidance notes previously published by the ACCC or ASIC," Citi said. "This is a highly technical area and if the ACCC believes there are matters to address, these should be clarified by law or regulation or consultation."

Visy and the cartel cases

Experts agreed there was little precedent for the landmark ANZ case, which is just the fourth criminal cartel case brought by the ACCC.

The ACCC established a dedicated team to uncover cartels when the laws became criminal offences in 2009, after the late billionaire Richard Pratt and his Visy group were fined a record $36 million in 2007 for price fixing.

The ACCC secured its first criminal case under the laws in 2017 against Japanese shipping company NYK, which was fined $25 million, and launched a second case against another Japanese shipping company, K-Line, which has pleaded guilty and faces a penalty hearing in November.

The ACCC launched its first criminal cartel case against an Australian company and its executives in February this year, being the Mildura-based family business Country Care Group, its managing director Robert Hogan and former business development manager, Cameron Harrison. The allegations – still before the courts – relate to NSW Health tenders where the group is alleged to get competitors to either bid lower or drop out of the tender process.

Blue Arrow precedent a 'costly disaster'

One of the few global cases that experts could point to is the UK's Blue Arrow case in the 1990s, which resulted in the conviction of four high-profile bankers before their convictions were overturned on appeal. The case was labelled a "costly disaster" that must never be repeated by appeal court judge Lord Justice Mann.

The Blue Arrow case involved a record-breaking £837 million rights issue to existing shareholders to fund a takeover bid for the world's largest recruitment agency Manpower.

County NatWest, the now defunct investment banking arm of NatWest, and stockbrokers UBS Phillips & Drew were tasked with finding buyers for the leftover shares – roughly 51 per cent of the new issue, worth around £472 million.

The bankers were only able to find buyers for roughly half and hid a remaining 19 per cent stake in Blue Arrow subsidiary companies with a plan to dribble the excess stock back on to the market over a period of months, sparking a prosecution by the UK's Serious Fraud Office.

 

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