Nick Tsagaris - ANZ Cartel Case: The Art Of The Flip And Why Bankers Have Turned Snitch

At age 77, suffering from diabetes and a host of other ailments, he became inmate 50444-054 — and for nine-and-a-half months until mid-2003, his registered address shifted from upscale Manhattan to a federal penitentiary in Rochester Minnesota.

ANZ and other banks have been hit with criminal cartel charges

Up to that point, Alfred Taubman was a jet-setting real estate and shopping mall tycoon who threw lavish parties and schmoozed with the likes of Donald Trump and Henry Kissinger after carving out a reputation as a ruthless but brilliant marketer.

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He was best known, however, as the flamboyant force behind art-house Sotheby’s which, over the course of 20 years, he transformed from an ailing and stuffy institution into the world’s premier auction house. And it was Sotheby’s that would prove to be his undoing.

Taubman scored a stint in the big house for something that only recently has become a criminal offense in Australia. He was convicted of being party to a criminal cartel after Sotheby’s and arch-rival Christie’s conspired to rig prices in the rarefied world of high-end art.

But the tale of how he landed there is likely to send a chill into the murky world of Australian banking after criminal charges were laid against six high-powered executives and three major banks in the past fortnight.

Prison garb and white collars

In the legal world, it is called “the flip” or “the rollover”. And it has become the primary tool in anti-trust and cartel investigations globally.

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It works like this: whoever comes clean first is granted immunity. As each participant is targeted, the urge to break ranks and avoid a jail sentence becomes a powerful motivating force.

There is no dispute that Christie’s and Sotheby’s colluded in the mid-1990s, in the wake of a global recession, to up their commission rates. How it came about and who ultimately was responsible are still contested.

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The crux of the case, however, was that Christie’s, which had been overtaken by Sotheby’s in terms of sales, made the first approach.

After years of plodding investigation, imagine the delight of authorities when Christie’s senior executive handed over a trove of documents about his dealings with his opposite number at Sotheby’s, Diana Brooks.

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Despite being the instigator, Christie’s secured an amnesty. Under intense pressure, Brooks then grassed Taubman, her once great mentor, claiming she was acting under orders, an accusation he denied.

While she was too involved in the scam to secure immunity, Brooks at least got to spend her time at home with an ankle bracelet while Taubman went down. No-one at Christie’s, meanwhile, ever saw the inside of a prison.

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Singing ANZ’s tune

Collusion and cartels are notoriously difficult to prove, particularly in hugely technical areas such as investment banking and trading in obscure financial instruments.

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While details of the accusations against the ANZ, Deutsche and Citi and the six senior executives will not be known until July 3 when the case is up for mention in Sydney’s Downing Centre, it is clear already that one major party has flipped and possibly several individuals at the other institutions.

At the heart of the case is a $2.5 billion capital-raising ANZ undertook in order to bolster its capital buffers. To raise the cash, the bank sold 80.8 million shares at $30.95 each. At least, that is what it told investors.

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What it did not announce was that it could not sell almost a third of the new shares at that price and that the investment banks — which, as underwriters, had to buy any shortfall — would be stuck with them.

That meant 25.5 million unwanted shares, worth just shy of $1 billion, would be overhanging the market — and if they all were dumped at the same time, the stock would take a hiding.

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According to some reports, the competition regulator believes a deal was hatched between ANZ, Citi, Deutsche and JP Morgan on how to dispose of the shares. And it is that alleged agreement — to keep the share price buoyant — that has attracted the attention of regulators.

For years, ANZ has been JP Morgan’s biggest client. What now has become clear is that JP Morgan — which has been granted immunity — has flipped.

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As Professor Justin O’Brien, a financial regulation expert at Monash University argues: “The issue is not that the ACCC or the Director of Public Prosecutions thinks it has a case.

“The issue is that JP Morgan thinks it is a case.”

A stark choice

The flip sends the charges ever higher, up the chain. When push comes to shove, the choice between jail time and company loyalty is not much of a choice at all.

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And that may go some way to explaining why the personal charges against Citi and Deutsche, which carry a maximum 10 years’ jail, go to the very top.

While it is unlikely both investment banks’ then-chief executives were personally involved in the nitty gritty negotiations that led to the alleged agreement, it is expected the court will examine their oversight and approval regimes.

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The case undoubtedly would have tribes of investment bankers combing through their records about deals conducted since the global financial crisis. There is no doubt anyone involved in underwriting capital raisings or floating new companies on the stock exchange right now are on edge.

Alf Taubman, who once boasted there was no difference between selling a Renoir or root beer, always professed his innocence and was particularly miffed that his counterpart at Christie’s never stood trial.

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But he took it on the chin, professing upon his release that despite his travails he still believed in the US judicial system.

“I had lost a chunk of my life, my good name and around 27 pounds,” he recalled in his 2007 memoir, Threshold Resistance: The Extraordinary Career of a Luxury Retailing Pioneer.

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Still, when you have your butler serving you hotdogs and caviar in your private jet on the way to the penitentiary, loss is a relative concept.

By: abc.net.au

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