Antitrust Law Daily Former financial services exec pleads guilty in pre-release ADR bid rigging probe
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Thursday, November 14, 2019

Former financial services exec pleads guilty in pre-release ADR bid rigging probe

By Jeffrey May, J.D.

Plea is the fourth in the Department of Justice Antitrust Division investigation.

Five months after a broker-dealer subsidiary of Industrial and Commercial Bank of China pleaded guilty for its role in a bid rigging conspiracy involving pre-release American Depository Receipts (ADRs), a former executive at the firm has admitted to his involvement in the conspiracy. Peter Volino, a former vice president at Industrial and Commercial Bank of China Financial Services LLC (ICBCFS), pleaded guilty in the federal district court in New York City to conspiring to borrow pre-release ADRs from U.S. depository banks at artificially suppressed rates, the Department of Justice announced today (U.S. v. Peter Volino, Case No. 19:CR-814).

According to the Justice Department, Volino admitted that, from at least as early as May 2012 until at least August 2014, he and his counterparts at other broker-dealers conspired to submit rigged bids to borrow pre-release ADRs. Volino’s plea is the fourth in the investigation. In addition to the plea from ICBCFS, Banca IMI Securities Corp., and former Banca IMI executive Larry Meyers have pleaded guilty. Following their guilty pleas, ICBCFS was sentenced to pay a criminal fine in excess of $3 million, and Banca IMI Securities was sentenced to pay a fine in excess of $2 million.

ADRs enable U.S. investors, who are generally unable to purchase or sell foreign shares, to gain exposure to—including the ability to receive dividends from—companies whose common stock is listed only on foreign stock exchanges. The U.S. Securities and Exchange Commission permits four U.S. depository banks to create ADRs, which represent foreign ordinary shares and can be traded in the United States.

The Justice Department stated that, during the conspiracy, a U.S. depository bank began using an auction-style process for pre-release ADRs and invited ICBCFS and other broker-dealers to submit competitive bids for rates to borrow ADRs. In response, Volino and his co-conspirators—using private chat rooms and text messages—conspired to suppress competition between them in an effort to artificially increase their profits under the auction-style process. On at least 24 occasions, ICBCFS, through Volino, reached an agreement with one or more co-conspirators as to the bids they would submit to U.S. depository banks, according to the government.

"The guilty plea announced today represents the culmination of a years-long investigation by the Division’s prosecutors and our FBI partners into collusion that infected bidding for pre-release ADRs," said Makan Delrahim, Assistant Attorney General in charge of the Department of Justice Antitrust Division. "The Division is committed to detecting, rooting out, and prosecuting antitrust crimes affecting our financial markets and to holding personally accountable executives who try to get ahead by violating the antitrust laws."

Companies: Banca IMI Securities Corp.; Industrial and Commercial Bank of China Financial Services

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