Investment bankers fret over Aussie cartel case

> Concern that landmark proceedings could lead to heightened scrutiny and tighter measures by regulators worldwide

SYDNEY/HONG KONG: Investment bankers are bracing for the start of a landmark legal case about alleged cartel activity in Australia’s financial sector, nervous the proceedings could lead to increased scrutiny and tougher measures from regulators worldwide.

Australian authorities filed criminal charges in June against the local units of Citigroup, Deutsche Bank, Australia and New Zealand Banking Group and six bankers over a US$2.3 billion (RM9.5 billion) stock sale. Most past investigations into cartels by the Australian Competition and Consumer Commission have looked at trade in goods. This is the first time a probe has led to charges alleging criminal cartel conduct in the financial sector.

Lawyers representing the banks and the six bankers are due to appear in court in Sydney on Tuesday, although hearings are not expected to begin for several months.

The charges are linked to an August 2015 sale of US$2.3 billion worth of new ANZ shares and the subsequent trading of some of the shares by two of the underwriters - Deutsche Bank and Citigroup. All three have denied wrongdoing and said they will fight accusations.

JPMorgan, which also underwrote the capital raising, has not been charged and has not commented on the case.

Charges have also been brought against six executives – ANZ’s former treasurer Rick Moscati; Citi’s former Australia head Stephen Roberts, current local head of capital markets John McLean, Londonbased head of foreign exchange trading Itay Tuchman; and Deutsche’s former local chief Michael Ormaechea as well as former local capital markets head Michael Richardson.

None of the executives have commented publicly so far.

An ANZ spokesman declined to comment on behalf of Moscati when Reuters contacted the bank on Friday.

For investment banks, the case will set a precedent in an area of financial markets activity that lacks clear rules and has never been tested in the courts, according to Citi.

“Underwriting syndicates exist to provide the capacity to assume risk and to underwrite large capital raisings, and have operated successfully in Australia in this manner for decades,” Citi said when the case was first made public.

A Citi spokeswoman declined to comment any further when contacted.

The fear is that a court hearing involving such high-profile firms and individuals might prompt regulators to take a fresh look at equity deals.

“These aren’t just criminal charges at the trader level, or someone in operations, these are very senior people who have been charged,” said Ben Quinlan, CEO of consultancy firm Quinlan & Associates.

Cartel charges in Australia come with a maximum penalty of three times the profit made from the cartel activity or 10% of a firm’s revenue. Penalties for individuals found guilty carry fines or a maximum 10year jail term. – Reuters