ASIC Pursues Civil Penalty for ANZ Disclosure Breach

ANZ failed to disclose in its 2015 capital raising that underwriters Citi and Deutsche took up one-third of its share placement, which is also the subject of a criminal case alleging cartel conduct.

ASIC (the Australian Securities and Investments Commission) has commenced Federal Court civil penalty proceedings against ANZ Bank for failing to comply with its continuous disclosure obligations relating to a AUD 2.5 billion (USD 1.79 billion) institutional share placement in 2015.

ASIC alleges that that ANZ contravened the Corporations Act by failing to notify ASX (the Australian Securities Exchange) that approximately one-third of the the bank’s shares offered in the placement was to be acquired by its underwriters (Citigroup and Deutsche Bank) rather than placed with investors.

In the bank’s 6 August 2015 release, ANZ announced “it had raised $2.5 billion in new equity capital through the placement of approximately 80.8 million ANZ ordinary shares at the price of $30.95 per share”, without mentioning the shares being acquired by the underwriters.

As such, ASIC is seeking a declaration that ANZ breached its continuous disclosure obligations and a pecuniary penalty order. But according to the FT, ANZ said it was not aware of a precedent for a listed entity to disclose the take-up of shares by underwriters in an equity placement and it would defend the allegations in court.

ASIC plans to argue that the information that underwriters had to take up the shortfall in the capital raising would have had a material effect on ANZ’s stock price and, as such, the bank was required by law to notify ASX of the underwriters’ acquisition of shares. The potential civil penalty is AUD 1 million for each disclosure breach.

But the civil case is related to a more serious criminal conduct case. In June, it was reported that ANZ, its underwriters Citigroup and Deutsche Bank, and several bank executives, were facing criminal charges for cartel conduct in the 2015 capital raising effort. (A third underwriter, JPMorgan, was granted immunity from prosecution for reporting the issue to authorities.)

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The cartel case focuses on how ANZ and its underwriters acted to coordinate the disposal of shares they took up in the placement, whereby executives had agreed among themselves not to sell the shares on the same day.

In the criminal case, ANZ, Citi and Deutsche face fines of AUD 10 million, three times the profit gained or up to 10 percent of their turnover. Each executive could face a jail term of up to 10 years or a fine of up to AUD 420,000.

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