In September last year, the AFR reported that two “explosive cases have upended capital markets, with investment banks' compliance and deal teams rethinking the underwriting and capital raising process”. Those cases were none other than the criminal proceedings brought by the ACCC against ANZ for alleged cartel conduct and the civil proceedings brought by ASIC against ANZ for breach of its continuous disclosure obligations, both arising from the conduct and aftermath of ANZ’s 2015 institutional placement. Here is a quick look at what these two cases are about and where they are up to.

In June 2018, we reported on the criminal charges laid by the Commonwealth Director of Public Prosecutions (DPP) against Citigroup, Deutsche Bank, ANZ and a number of banking executives as a result of alleged cartel arrangements relating to the trading of ANZ shares following the institutional placement of ANZ shares in August 2015.

Almost 10 months on, the DPP finally served its statement of facts on the defendants, although the full details of its case remain unknown. It seems that the arguments will focus on how the underwriters agreed to distribute and price the shortfall, and whether there was an understanding between ANZ and the underwriters on the allocation of excess shares. Given the eventual shortfall amounted to 31% of the $2.5 billion placement, it would certainly have been in the interests of the underwriters to ensure that the oversupply of shares was not offered into the market too quickly, as this could negatively impact the prevailing share price.

Whatever way the prosecution ultimately frames its case, what is certain is that the proceedings will raise a series of interesting and novel legal questions, including whether ordinary shares in a company constitute “goods or services” for the purposes of the cartel offence.

The matter has been set down before local court magistrate Jennifer Atkinson for a committal hearing before the case is referred to the Federal Court for trial by jury.

If convicted, the banks could face penalties of up to A$10 million or triple the benefit of the conduct. The banking executives charged could face up to 10 years in jail.

Until the case runs its course and the market receives guidance from the courts and the ACCC as to how they should conduct themselves in a joint underwriting, underwriters will need to tread carefully and review their modus operandi to ensure they do not breach the cartel provisions.

On the other side of the regulatory fence, the civil proceedings commenced by ASIC against ANZ in connection with its 2015 placement for breach of its continuous disclosure obligations has seen a bit more action, with the Statement of Claim filed by ASIC in November 2018, around two months into the proceedings.

Central to ASIC’s claim is that, following completion of the placement and before recommencement of trading in its shares on ASX, ANZ materially prejudiced the interests of buyers and sellers of ANZ shares by failing to inform the market that due to inadequate demand from institutional investors for the placement shares, the underwriters – Citibank, Deutsche Bank and JP Morgan – had allocated to themselves, and would acquire a significant portion of, approximately 31% (or $791 million) of the total $2.5 billion worth of placement shares. Instead, ANZ’s ASX release in respect of the placement simply said that “it had raised $2.5 billion in new equity capital through the placement…”.

ASIC alleges that the omitted information was non-public, price-sensitive information which, had it been disclosed, was likely to place downward pressure on ANZ’s share price, with the result that:

  • potential purchasers of ANZ shares would likely have refrained from purchasing more shares in anticipation that the disposal by the underwriters of their holdings would present an opportunity to purchase at a lower price; and/or
  • sophisticated traders of ANZ shares would likely have engaged in trading activities such as shorting the shares in anticipation of being able to purchase them at a lower price.

ASIC contends that ANZ’s contravention of its continuous disclosure obligations was a serious breach that prevented the "fair, effective and efficient operation of Australian markets for securities", and was aggravated by the fact that following completion of the placement, representatives of the underwriters agreed not to sell down their respective shortfall shares pending further consultation with ANZ.

While ANZ has not formally filed its defence in the proceedings, ANZ has publicly defended its actions, stating that:

  • the bank was "not aware of a precedent for a listed company to disclose the take up of shares by underwriters in an equity placement";and
  • the shortfall in question represented, by value, less than 1 per cent of the total shares on issue in ANZ and "were taken up by the joint lead managers in circumstances where the book indicated the placement was covered at 103 per cent".

ANZ has applied for a stay of ASIC’s proceedings pending the resolution of the cartel proceedings. The stay application will be heard on 5 June 2019.