Banca IMI fined $2 million for ADR violations

Banca IMI pled guilty to antitrust charges after conspiring with other brokers to rig bids to borrow pre-release ADRs, according to the US Department of Justice.

By Hayley McDowell

Broker-dealer Banca IMI Securities has been fined $2 million by authorities in the US after pleading guilty to an antitrust charge related to its American Depository Receipts (ADRS) business.

The US Department of Justice said in a statement that Banca IMI had been involved in a bid-rigging conspiracy from March 2012 until at least August 2014. The broker conspired with other institutions to submit rigged bids to borrow pre-released ADRs.

“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 assistant attorney general Makan Delrahim of the Justice Department’s Antitrust Division.

“Complex financial markets are not beyond the reach of the antitrust laws. 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.”

ADRs, which allow US investors to trade in foreign stocks, require a matching number of foreign shares to be held at a custody or depositary bank, but can be “pre-released” if a broker or customer owns the underlying stock.

The conspiracy saw a US depository bank use an auction-style process for pre-released ADRs and invited Banca IMI, alongside other brokers, to submit competitive bids for rates to borrow ADRS, the Department of Justice said. As part of a coordinated effort, Banca IMI and the other co-conspirators reached agreements on at least 30 occasions on the bids that would be submitted to US depository banks.

“The FBI is committed to rooting out corruption and fraud against the United States wherever it occurs,” said assistant director Robert Johnson of the FBI’s Criminal Investigative Division. “The guilty plea today is the result of the FBI International Corruption Unit’s persistent and ongoing efforts to protect competition and identify those engaged in anticompetitive, fraudulent conduct. We will continue to pursue antitrust investigations aggressively with our DOJ partners.”

Last year, Deutsche Bank paid a $75 million settlement after being charged with improper handling of pre-release ADRs. The case stemmed from a continuing Securities and Exchange Commission investigation into abuses involving pre-released ADRs. BNY Mellon, Citi, Merrill Lynch and JP Morgan are among the banks that have also settled charges of improper handling of pre-released ADRs with the SEC.