Tuesday, October 27, 2020

Second New York Broker-Dealer Pleads Guilty To Rigging Bids for Financial Instruments in Violation of Antitrust Law


Industrial and Commercial Bank of China Financial Services LLC (ICBCFS) pleaded guilty to an antitrust charge and was sentenced to pay a criminal fine in excess of $3 million for its involvement in a bid-rigging conspiracy involving certain financial instruments, the Department of Justice announced today.

ICBCFS admitted, as part of a guilty plea, that from May 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).  ICBCFS’s plea is the second in the ongoing criminal antitrust investigation; Banca IMI Securities Corp. previously pleaded guilty for its role in the conspiracy and was sentenced to pay a fine in excess of $2 million on May 10, 2019.

Worldwide, thousands of publicly traded companies list their shares of common stock only on foreign stock exchanges.  Most U.S. investors are unable to purchase or sell such foreign shares.  The U.S. Securities and Exchange Commission, however, permits four U.S. depository banks to create ADRs, which represent foreign ordinary shares and can be traded in the United States.  Through the purchase and sale of ADRs, U.S. investors are able to gain exposure to — including the ability to receive dividends from — companies whose common stock is listed only on foreign stock exchanges.

ICBCFS 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 and invited ICBCFS and other broker-dealers to submit competitive bids for rates to borrow ADRs.  In response, ICBCFS and its co-conspirators intensified their coordination in an effort to artificially increase their profits under the auction-style process.  On at least 24 occasions, ICBCFS 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 would all submit the same bid.

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“In today’s proceeding, the Department of Justice and its law enforcement partners held to account another broker-dealer for its role in suppressing competition and rigging bids in the financial services industry,” said Assistant Attorney General Makan Delrahim of the Justice Department’s Antitrust Division.  “The competitive integrity of financial markets is essential to their efficient operation, and the Antitrust Division will continue to aggressively prosecute collusion that corrupts our financial markets.”

“As evidenced by this latest guilty plea, the FBI’s investigation into big ridding for ADRs is broad and deep,” said Assistant Director Robert Johnson of the FBI’s Criminal Investigative Division. “Not only are we bringing the conspirators to justice, we are sending a message to the entire financial industry: you are not above the law. The FBI can and will investigate bid rigging and all fraudulent schemes.  You will be caught.”

“This guilty plea is an example of the FBI’s commitment to investigating companies when they operate outside the law and conspire to cheat and dominate the marketplace,” said FBI Washington Field Office, Acting Assistant Director in Charge, John P. Selleck.  “I would like to thank the FBI agents and analysts who have worked on this complex investigation and are committed to holding those companies accountable who disregard the rule of law for their own financial gain.”

The Securities and Exchange Commission also separately announced today that ICBCFS has agreed to settle charges that it violated federal securities laws by improperly handling pre-release ADRs.

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