Cartel charges over ANZ shares are a wake-up call to the Australian market

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Criminal cartel charges over a $2.5 billion capital raising by the ANZ Bank, with details expected to be revealed this week, are a wake-up call to ASX-listed companies to treat all shareholders the same.

The Commonwealth Director of Public Prosecutions is expected to start proceedings this week over alleged cartel conduct by the joint lead managers of ANZ’s underwritten Institutional Equity Placement of 80.8 million shares in August 2015.

The case centres around the placement of bank shares at $30.95 each and the lack of disclosure that 25.5 million of these went to two of the three joint lead managers.

ANZ, Deutsche Bank and Citigroup intend to defend the charges. JPMorgan, the other lead manager, is reportedly co-operating with ACCC.

Individuals are also facing charges, including Rick Moscati, the ANZ’s Group Treasurer.

Penalties for individuals convicted in a cartel case include jail of up to 10 years. Companies can be fined $10 million or 10% of annual turnover.

The case is the result of an investigation by the consumer watchdog, the ACCC (Australian Competition and Consumer Commission), which has for some years been warning that it won’t tolerate cartel conduct.

In February this year, ACCC chairman Rod Sims launched the ACCC’s 2018 Compliance and Enforcement policy, putting cartel behaviour back on the agenda in Australia.

“2017 also saw just the second criminal cartel prosecution in Australia for cartel conduct — more than 100 years after the first, the Coal Vend case in 1908 (when coal producers fixed prices and tried to restrict supply),” Sims then said.

“This marks a significant step forward in the ACCC’s investigations and approach to this form of corporate misconduct.

“Last year’s conviction of NYK, a Japanese shipping company, together with the $25 million fine imposed by the Federal Court, also indicates the seriousness with which the Courts view collusion of this kind.”

The charges relating to the ANZ shares are also a wake-up call to reform capital raising by ASX listed companies, says the Australian Shareholders’ Association (ASA).

ASA CEO Judith Fox said the allegations of cartel arrangements highlight the need for directors to manage the governance of underwriting arrangements, share allocations and advice to boards from global investment banks.

“Without specifically commenting on the ANZ situation, boards do not necessarily undertake capital raisings on a regular basis,” says ASA CEO Judith Fox.

“They rely on the advice of investment banks, which have a history of favouring institutional shareholders over retail shareholders and also benefiting from the opaque way in which allocations of new shares are often conducted,” she says.

“Shareholders expect directors to challenge that advice, so they can be confident that all shareholders are being treated equally and that some parties are not benefiting at the expense of other shareholders.”

ASA has been a strong advocate for capital raising reform, pointing out that structures that favour institutional shareholders — such as placements and non-renounceable pro-rata offers — have been diluting retail shareholders, while the investment banks are paid large fees, plus often profit directly from the share sales.

The Australian Financial Review reports that a recorded video conference between the ANZ, JPMorgan, Deutsche and Citigroup is expected to form the heart of the case.

Treasurer Scott Morrison says the ANZ case is a serious matter.

“Given the nature of that and where it stands, it would be inappropriate of me to offer any other comment than to note that where these charges have come from stem from an ACCC investigation and they are the cop on the beat on this and that will be tested through the proper process,” he says.

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