Broker-Dealer Pleads Guilty to Antitrust Violation by Conspiring to Rig Bids in Pre-Release ADR Market, Pays $2 Million+ Fine

On May 10, the U.S. Department of Justice announced that Banca IMI Securities Corp. (Banca IMI), a New York broker-dealer and subsidiary of Italian bank Intesa Sanpaolo, “pleaded guilty to an antitrust charge and was sentenced to pay a criminal fine in excess of $2 million for its involvement in a bid-rigging conspiracy for certain financial instruments.”

The Justice Department stated that “Banca IMI admitted, as part of its guilty plea, that from March 2012 until at least August 2014, it conspired with other institutions and individuals to submit rigged bids to borrow pre-release American Depository Receipts (ADRs).”  In particular, it said that

Banca IMI pleaded guilty to conspiring to borrow pre-release ADRs from U.S. depository banks at artificially suppressed rates.  During the conspiracy, a U.S. depository bank began using an auction-style process for pre-release ADRs and invited Banca IMI and other broker-dealers to submit competitive bids for rates to borrow ADRs.  In response, Banca IMI and its co-conspirators intensified their coordination in an effort to increase artificially their profits under the auction-style process.  On at least 30 occasions, Banca IMI reached an agreement with one or more co-conspirators as to the bids they would submit to U.S. depository banks.  On many occasions, the conspirators agreed that they all would submit the same bid.

Note: This is not Banca IMI’s first encounter with U.S. enforcement authorities in connection with pre-release ADRs.  In 2017, Banca IMI agreed to pay more than $35 million to the Securities and Exchange Commission (SEC) to settle charges that it violated federal securities laws when it requested the issuance of and received American Depositary Receipts (ADRs) without possessing the underlying foreign shares.  Nor is this the first recent enforcement action relating to pre-release ADRs, as several other leading financial institutions have also reportedly “settled charges of improper handling of pre-released ADRs with the SEC.”

It is curious that the Department did not specify the criminal offense to which Banca IMI pleaded guilty, other than the generic term “an antitrust charge.”  Nor did it specify the date of the plea, the federal judicial district in which the plea was entered, or the maximum sentence that could be imposed for the violation.  It is customary for the Department, in announcing pleas or trial convictions (including criminal antitrust prosecutions), to refer specifically to all four categories of information, for the sake of the media’s and the public’s understanding.  Although various media reports simply repeated the vague phrase “an antitrust charge” in reporting the plea, the underlying offense can only be section 1 of the Sherman Act, in the light of the Department’s allegations.

In any event, financial-institution compliance officers handling antitrust compliance issues should take note of the plea, and of the Justice Department’s indication that it and the FBI are continuing their investigation into bid rigging in the market for pre-release ADRs, in updating their internal guidance and training for executives.

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