First Individual Defendant Pleads Guilty in Ongoing Pre-Release ADRs Investigation
Larry D. Meyers, the former head of the securities lending desk at Banca IMI Securities Corp., pleaded guilty to a criminal antitrust charge for his involvement in a bid-rigging conspiracy for certain financial instruments, the Department of Justice announced.
Meyers admitted that, from at least as early March 2012 until at least August 2014, he and his counterparts at other broker-dealers conspired to submit rigged bids to borrow pre-release American Depository Receipts (ADRs). Meyers’ plea is the third in the ongoing investigation; Banca IMI and Industrial and Commercial Bank of China Financial Services LLC previously pleaded guilty on May 10, 2019, and June 14, 2019, respectively.
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 exchanges.
Meyers 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 for pre-release ADRs and invited Banca IMI and other broker-dealers to submit competitive bids for rates to borrow ADRs. In response, Meyers and his co-conspirators intensified their coordination in an effort to artificially increase their profits under the auction-style process. On at least 30 occasions, Banca IMI 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 all would submit the same bid. Meyers and his co-conspirators reached these agreements using, among other means, private chat rooms and text messages.
“The guilty plea announced today represents the commitment of the Division and its law enforcement partners to hold accountable for market-corrupting collusion not just the companies that benefit from that unlawful activity, but also the executives who carry it out,” said Assistant Attorney General Makan Delrahim of the Department of Justice’s Antitrust Division.
“This guilty plea highlights just how thorough FBI investigations truly are,” said Assistant Director Robert Johnson of the FBI’s Criminal Investigative Division. “Individuals engaged in corrupt activity cannot expect to hide behind their companies. The FBI is committed to pursuing all those who use criminal means to enrich themselves at the expense of U.S. investors.”
“The FBI is committed to investigating companies and executives when they operate outside the law and attempt to play by different rules in the marketplace,” Charles A. Dayoub, Acting Special Agent in Charge of the Criminal Division at the FBI’s Washington Field Office. “I would like to thank the dedicated FBI agents and analysts who have worked on this investigation and are committed to holding those accountable who ignore the rule of law in the United States.”
A criminal violation of Section 1 of the Sherman Act carries a maximum term of imprisonment of 10 years and a maximum fine of $1 million for individuals. The fine may be increased to twice the gain derived from the crime or twice the loss suffered by the victims of the crime, if either of those amounts is greater than the statutory maximum fine.
The Washington Criminal II Section of the Antitrust Division and the FBI’s International Corruption Squad in Washington, D.C., are conducting the investigation into bid rigging in the market for pre-release ADRs. Anyone with information in connection with this investigation is urged to call the Antitrust Division’s Washington Criminal II Section at 202-598-4000 or visit www.justice.gov/atr/contact/newcase.html.