Australian authorities launch criminal cartel proceedings against investment banks – UPDATE

What has happened?

On 5 June 2018, the Australian Director of Public Prosecutions (CDPP) laid criminal charges against three investment banks, ANZ, Citigroup and Deutsche Bank and six senior executives at those banks.  A fourth bank, JP Morgan, has reportedly been granted conditional immunity for disclosing the conduct under investigation.  The charges follow a two-year investigation by the Australian Competition and Consumer Commission (ACCC).

The charges allege a cartel in connection with the Institutional Equity Placement by ANZ, on 6 August 2015, of approximately 81 million shares with a value of AUD 2.5 billion.  The placement was underwritten by Citigroup (40%), Deutsche Bank (30%) and JP Morgan (30%) with a floor price of AUD 30.95.  After the placement, approximately 26 million shares, with a value of AUD 800 million, remained unsold.  It is alleged that ANZ and the three underwriters discussed how to sell the unplaced shares – including as to timing and price – in order to minimize the impact on ANZ’s share price, and that those discussions infringed competition law. 

In parallel, on 14 September 2018, the Australian Securities and Investments Commission (ASIC) filed civil proceedings against ANZ for allegedly failing to notify the Australian Securities Exchange (ASX) that a significant portion of the placement shares were to be acquired by its underwriters, rather than placed with investors. 

Why does this matter?

These are the first Australian criminal cartel proceedings in the financial services sector, since the criminalisation of cartel conduct in 2009.  They are also only the third ever set of criminal cartel proceedings in the country.  The first two proceedings concluded with guilty pleas.  Therefore, if the banks and senior executives plead not guilty, as is expected, the proceedings will be the first proper test of the relevant law and its application to the facts. 

The case is also significant because equity underwriting is a major area of investment banking, with a long history, and has to date been subject to only limited antitrust scrutiny.  Therefore, regardless of the outcome in this particular case, the publicity surrounding it will prompt the industry to reconsider whether market practice in joint equity underwriting is compliant with antitrust laws.  It may also prompt a fresh look at other areas of investment banking that involve syndicates, for example, loan syndication, which has recently come under scrutiny in Europe, including from the European Commission and the UK Financial Conduct Authority.

The Australian authorities are yet to publicly set out their concerns in this case.  However, by bringing criminal proceedings, they face a higher standard of proof than they would in civil proceedings, and a requirement that there was “knowledge or belief” of the existence of a cartel.  In addition, the case could turn on questions such as:

  • Did the underwriters set the floor price on the understanding that they would be able to act jointly in the sale of any unplaced shares;
  • Did the market know that the underwriters were engaged on that basis;
  • Was the market aware that the underwriters had acquired unplaced shares.  

What happens next?

At a hearing held on 9 October 2018, the case was adjourned until 5 February 2019, to allow the CDPP to compile evidence.  In that regard, ANZ complained at the hearing that the CDPP’s failure to send a statement of facts was hindering the preparation of its defence. 

If convicted the individuals concerned face prison sentences of up to 10 years, monetary fines and possible disqualification from future employment in the financial services sector.  The defendant banks face potentially significant monetary fines.

How can Cadwalader help?

Cadwalader’s antitrust team is one of only a few to focus on the financial services sector. We regularly represent companies before the EU, UK and US antitrust authorities, and are specialists in offering ‘end-to-end’ advice on antitrust investigations and related litigation in this sector, working closely with our financial regulatory and white collar colleagues. 

If you would like to discuss the issues arising in this alert, or how we can help you more generally, please contact Tom Bainbridge.



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