Antitrust Law Daily New York broker-dealer pleads guilty in pre-release ADR bid rigging probe
Friday, May 10, 2019

New York broker-dealer pleads guilty in pre-release ADR bid rigging probe

By Jeffrey May, J.D.

Department of Justice files first charge in ongoing investigation into a conspiracy to rig bids to U.S. depository banks for the rates they would pay to borrow pre-release American Depository Receipts.

Banca IMI Securities Corp., a New York broker-dealer, pleaded guilty to participating in a bid rigging conspiracy involving financial instruments, known as pre-release American Depository Receipts (ADRs), the Department of Justice announcedon May 10. Banca IMI's chief executive officer, Paolo Desideri, appeared in federal district court in New York City before Judge J. Paul Oetken. The firm waived the indictment and was sentenced to pay a fine of $2,207,107 (U.S. v. Banca IMI Securities Corp., Case No. 1:19-cr-00349-JPO).

According to the Justice Department, 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 ADRs. Through the purchase and sale of ADRs, U.S. investors, who are generally unable to purchase or sell foreign shares, are able to gain exposure to—including the ability to receive dividends from—companies whose common stock is listed only on foreign stock exchanges, the government explained. 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.

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. Banca IMI, which acted as a conduit broker of pre-release ADRs, and its co-conspirators coordinated to increase artificially their profits under the auction-style process, the government alleged.  On at least 30 occasions, Banca IMI purportedly reached an agreement with one or more co-conspirators as to the bids they would submit to U.S. depository banks.

Antitrust chief’s remarks. “Today’s charge represents the commitment of the Department of Justice and its law enforcement partners to uncovering and prosecuting cheaters who corrupt our financial and capital markets,” said Makan Delrahim, Assistant Attorney General in charge of the Department of Justice Antitrust Division.  Noting that “[c]omplex financial markets are not beyond the reach of the antitrust laws,” Delrahim added that the “Antitrust Division will aggressively pursue criminals in technically complicated markets, including those that some wrongly presume may be beyond detection or the reach of antitrust enforcement.”

Attorneys: Christina Joanne Brown and Daniel McCuaig for Department of Justice. Steven David Feldman (Murphy & McGonigle PC) for Banca IMI Securities Corp.

Companies: Banca IMI Securities Corp.

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