At risk was the ANZ share price. ANZ had announced that the share placement had successfully closed – but the bank did not inform the market that 25.5 million shares were now in the hands of the underwriters. The question was when and how to dispose of the huge stub of unplaced shares worth nearly $800 million.
But according to Mr Herbert-Smith who was present on that crucial Friday phone call – and who gave evidence in Sydney’s Downing Centre Local Court last year – no joint agreement was reached to sit on the shares, although this was the ultimate outcome.
It is an account that the ACCC – which later brought criminal cartel charges against all of the banks with the exception of JPMorgan – would disagree with.
Philip Strickland SC, appearing for former ANZ group treasurer Rick Moscati, questioned Mr Herbert-Smith in the Downing Centre court last December over his recollection of the August 7, 2015, syndicate phone call.
It was the first of four crucial phone calls between underwriters over that weekend. The Friday call was not recorded but two back-to-back calls the next day, Saturday, August 8, were recorded and ended up in the hands of the regulator. A fourth call on Monday, August 10, was also not recorded but is part of key evidence in the case.
Mr Herbert-Smith agreed that he had given his version of the Friday call to the ACCC. His evidence under cross-examination provided a tiny bird’s-eye glimpse of contentious evidence in a towering case expected to go to trial later this year.
Mr Strickland: “You told the ACCC that the first person who spoke about what was going to happen on the Friday from their position was [Deutsche Bank’s] Michael Ormaechea, correct?”
“… you called him Omo, is that right … you said that Omo said, during that call, words to the effect of: ‘look Rick’ meaning [ANZ’s] Mr Moscati, ‘look, we are comfortable with our risk and we’re happy to stay out of the market today, let the market digest what happens,’ or words to that effect?”
“Then you told her [an ACCC officer] that the second person that spoke was Mr Roberts from Citibank.”
“He said words to the effect of ‘we’re comfortable with our risk position as well. We intend to stand on it. We’re not going to do anything today,’ correct?”
“Words to that effect, yes.”
Mr Herbert-Smith said he was the third underwriter to speak on the call and had said words (on behalf of JPMorgan) to the effect, “Look, we’re happy to stay out of the market as well.”
Mr Strickland pressed his point. “You told ACCC that there was no agreement between Citi, Deutsche and JPM [JPMorgan] position about not trading on Friday, correct?”
Mr Herbert-Smith: “I meant that there was no prior discussion relating to those three lines that you’ve just recited.”
“When you said it was from your point of view an independent decision?”
“I think you did also tell the ACCC that you thought what Omo and Mr Roberts were doing was just kind of jawboning, using your words. Chest beating?”
“I was speculating.”
“That’s what they were doing. That’s what you told her – you thought they were chest-beating?”
“Saying that they were tough and didn’t need the trade?”
“Yeah, in the knowledge of no other conversations, I’d assume that that was, yeah, certainly the position I was putting. Chest beating. I think I used the word but I can’t recall.”
Three weeks after the August 2015 phone calls, the axis tilted for some of the biggest names in investment banking, who had been on those calls. None of them would have any idea until they were blindsided by criminal charges – with the exception of those at the top of one bank, JPMorgan, which had approached the ACCC seeking a potential deal on immunity.
In June 2018, the ACCC announced criminal charges against ANZ, Citigroup, Deutsche Bank and six of their executives, alleging they had given effect to a cartel commencing with that Friday, August 7, phone call.
The six bankers accused were Citigroup’s former Australia head Stephen Roberts, Citi executives John McLean and Itay Tuchman; the former country head of Deutsche, Michael Ormaechea, former Deutsche executive Michael Richardson; and ANZ’s then group treasurer, now executive, Rick Moscati.
The regulator alleged they had agreed to restrict the supply of goods and services – shares in ANZ – to directly or indirectly maintain the share price.
To the shock of the investment banking community, news emerged at the same time that JPMorgan and some of its executives had received immunity in exchange for assisting the prosecution case. In other words, they had been singing to the regulator and the DPP.
To say the defendants were devastated was an understatement.
JPMorgan approached the ACCC within weeks of the ANZ capital-raising seeking a “first in marker”. Under cartel law, this enabled one party in a cartel to negotiate a potential immunity: whoever got in first. The company soon negotiated full immunity.
When the ACCC launched its case, ACCC boss Rod Sims confirmed the bank would not face charges under the regulator’s policy providing immunity if a party gave a detailed description of cartel conduct.
Now, defendants and the wider corporate community are agog for any information on what JPMorgan witnesses have told the regulator, and in particular what went on during the four phone calls at the heart of the case – and who recorded the calls.
Speculation in banking circles has raged about the origin of the recording of two of those calls – from an individual recording on a mobile phone then going to the ACCC, through to JPMorgan compliance managers automatically recording all calls they dial into, and sending the recordings up the line to New York.
The magistrate’s court agreed last year that limited cross-examination could take place with four JPMorgan witnesses regarding their immunity negotiations; and also with four ACCC officers. That cross-examination is now half-way through.
The four current and former JPMorgan witnesses are Mark Dewar, head of trading, equities and derivatives; Richard Galvin, former head of equity and derivative capital markets; Jeffrey Herbert-Smith, former managing director and head of markets; and Oliver Bainbridge, director of compliance, Australia.
In an earlier hearing, last September, also part of the committal proceedings, Dean Jordan SC for Citigroup told the court that witness statements showed Mr Herbert-Smith and Mr Galvin had participated in the unrecorded 10am Friday morning call.
Insofar as the two recorded calls on the Saturday, the first at 10.30am included Mr Herbert-Smith, Mr Dewar and Mr Bainbridge; the second call at 11am included Mr Herbert-Smith and Mr Galvin.
In regards to the unrecorded Monday call, Mr Jordan said, “on that call, all of Mr Herbert-Smith, Mr Galvin, Mr Bainbridge, and Mr Dewar appear to have been participants.”
These four JPMorgan witnesses have all been granted conditional immunity in exchange for assisting the prosecution.
Mr Jordan described to the court the unusual nature of the immunity granted to JPMorgan.
“As your Honour is probably aware, these are very novel proceedings. This is really only the second time that I am aware of that these, from a criminal lawyer’s perspective, unusual immunity processes that are adopted by the Australian Competition and Consumer Commission, have come under any scrutiny in criminal courts.
“For example, the notion that a person can go to the ACCC and get what’s described as a first in marker from the very beginning, which is effectively: ‘well, as long as you comply with the relevant conditions you have first opportunity of getting immunity and nobody else can’, are markedly different to the process that applies in normal criminal proceedings … and as your Honour would be aware, the idea that in normal criminal proceedings a potential defendant can simply approach an investigator, get a first in marker and then have reasonable certainty to immunity is very, very different.”
Mr Jordan directly raised the nature of the immunity trade-off with Mr Galvin, the first of the JPMorgan witnesses to take the stand last year under cross-examination.
“Just to give you a bit of context because you have got a large array of lawyers in front of you, my name is Jordan and I appear for Citigroup,” he said.
“Mr Galvin, you understand that in this case the prosecution alleges that there was an unlawful competition cartel arrangement arising out of the ANZ share placement in August 2015.”
“And in relation to that alleged cartel arrangement you have received an undertaking from the Commonwealth Director of Public Prosecutions that’s subject to certain conditions; that you will not be prosecuted.”
Mr Galvin told the court that he had been called to a meeting in mid-March 2016 with one of JPMorgan’s internal lawyers, Josh Kyle, and a senior compliance executive, Oliver Bainbridge. He said he had been told to “drop everything to make the meeting”.
Mr Galvin said he was advised at that meeting to get his own counsel and he was given a list of suggested lawyers.
Philip Strickland SC, appearing for Rick Moscati, asked Mr Galvin in cross-examination: “Do you recall now what the purpose of that meeting was?”
“To tell me that there was an issue, a potential cartel issue, with ANZ and that interest may divert so I needed to get my own counsel and that JPMorgan would pay for the counsel, and I was given a list with Mr Lewis’ name on it.”
Mr Galvin told the court that he attended his first meeting at the ACCC offices on July 20, 2016, in Sydney. He recalled he gave a very detailed chronology “of what happened from the awarding, or from first hearing about the ANZ transaction”.
He said he had listened to recordings of phone calls between all the banks and ANZ executives. He had also read transcripts of the phone calls to see if they were accurate. He had first listened to the calls over two days at the offices of his new lawyer, Stan Lewis, from Corrs Chambers Westgarth.
“Do you recall approximately how many telephone calls you listened to over those two days in the period between mid-March and July 2016,” Jordan asked.
“I can only recall three but there may have been more …”
“Did you as a result of listening to those calls create any other documents, that is, documents other than the marked-up transcripts?”
“I confirmed that it was me on the calls. I provided a statement that I was on the call or confirmed that I was the party to those calls; that was my voice.”
Mr Jordan pressed further into the calls. “Accepting that this is probably an impossible question for you to answer, do you now recall which three calls you reviewed on that first occasion in Mr Lewis’ offices between March and July 2016?”
“At the first meeting my recollection is the first two calls I listened to were the ones that were taped that had all the banks and ANZ on them – or the two calls on the Saturday morning and the one shortly thereafter.”
“What about on the second day [of meetings in Mr Lewis’ office]?”
“The second there was a call between myself and Mark Dewar [JP Morgan head of trading, equities and derivatives].”
Galvin revealed that he had also been asked by the ACCC during his first meeting with the regulator to go away and listen again to the two calls recorded on the Saturday morning and to help identify other people on the calls.
Mr Jordan asked: “Did they ask you to do anything else in relation to listening to those calls?”
“They asked me to confirm the voices of the people that were speaking.”
Mr Galvin later signed a second, supplementary statement for the ACCC on July 12, 2018.
Just before going to the ACCC for that statement, he said he had had a meeting with his own lawyer and also JPMorgan lawyers led by Gilbert + Tobin partner and top competition lawyer Gina Cass-Gottlieb.
Asked what had occurred at the ACCC meeting, Mr Galvin replied: “It was about the specifics of the two recorded telephone calls and my awareness around the actual recording of those calls, and also of the identity of the voices; that I could recognise from the calls.”
Her Honour: “Are these the Saturday calls?”
“Yes, they are, Your Honour.”
Mr Strickland, appearing for ANZ’s Rick Moscati, asked Mr Galvin when he had first discussed the ANZ transaction with internal compliance staff at JPMorgan.
In reply Mr Galvin revealed that JPMorgan’s compliance division had been involved at all stages of the transaction, including on the syndicate phone calls.
“The internal compliance people were involved in the calls and the trading from the day we executed the transaction through until November,” he said.
Recalled seeing a letter
JPMorgan witness Mark Dewar told the committal hearing that the first time he became aware JPMorgan had received a “first in” immunity marker was around mid-March 2016. This was seven months after the ANZ transaction and six months after JPMorgan itself was first in communication with the ACCC discussing immunity as a corporate entity.
Mr Dewar said he recalled seeing a letter provided through his solicitors that addressed the topic of the first in marker.
“Prior to receiving notice in this way of the fact that JPMorgan had obtained a first in marker, had anybody raised with you the topic of JPMorgan seeking immunity in relation to the ANZ capital raising?”
“As best I can recall, no.”
Mr Jordan: “Could I show you a document, Mr Dewar. I have got a copy for her Honour as well … Do you see the document I am showing you, a letter from Ms Jane Lin of the Australian Competition and Consumer Commission, dated 15 March 2016 to Mr Peter Thompson, the principal of Thompson Eslick Solicitors, do you see that?”
Mr Jordan read from a section of the ACCC’s letter. “Do you see in the second paragraph: ‘I understand that your client Mark Dewar, an employee of JPMorgan, is willing to attend an interview on 23 March 2016 as a part of the ACCC’s assessment of JPMorgan’s immunity application,’ do you see that?”
“Yes,” Mr Dewar replied.
Three-day session of interviews
“Before this letter was shown to you, was it known to you personally that you would be attending a meeting with the ACCC on 23 March 2016?”
“I don’t recall,” Mr Dewar said.
“Do you have any understanding as to how the ACCC, as at the date of this letter on 15 March 2016, understood that you were willing to attend an interview on 23 March 2016?”
“No, I don’t” the witness replied.
Mr Dewar also told the court he believed the first time he had been asked to listen to recordings of telephone calls made during the ANZ capital-raising was during a meeting at the ACCC.
He agreed that later in 2016, after a three-day session of interviews at the regulator’s offices, he was given some jobs to do; he recollected that this included reviewing trading data around the ANZ transaction – and also, again listening to recordings of telephone calls and reviewing transcripts of those calls.
He did so with assistance from his lawyer, Mr Thompson, over several days.
Mr Jordan: “You spent many hours listening to these telephone calls and reviewing transcripts of the calls?”
On August 10, 2018, Dewar attended the ACCC to sign a supplementary statement.
Mr Jordan asked Mr Dewar whether he recalled JPMorgan’s top solicitor Gina Cass-Gottlieb – who also attended the meeting – seeking to have part of a recorded call removed from evidence. Mr Dewar conceded he had some memory but could not recall the details.
Mr Jordan: “In terms of the lawyers who were there for JPMorgan on this day, 10 August 2018, was the most senior lawyer again Ms Cass-Gottlieb?”
“Do you recall during the course of that day by which this supplementary statement was prepared, Ms Cass-Gottlieb asking officers of the ACCC to consider if part of a recorded telephone call and a transcript could be removed from evidence?”
“I have a vague recollection of something like that happening but I don’t remember specifics.”
During cross-examination over December 6 and December 12 last year, Jeffrey Herbert-Smith answered questions about a meeting on March 23, 2016, with the ACCC to consider whether he should be given immunity.
Philip Strickland SC asked Mr Herbert-Smith about the circumstances in which he had been on the Friday phone call.
Mr Strickland: “You were asked to give an account of your participation in that 10am phone call on 7 August?”
Mr Herbert-Smith said he had been brought on to the “Friday call” only at short notice because he had been attending another meeting.
He agreed that he had told the ACCC – ahead of receiving immunity – that he had not had any discussions with other bankers before the first phone call about handling the left-over ANZ shares.
He had not spoken to “anyone from Deutsche Bank about what would be discussed on the call, correct?”
“You told the ACCC that you didn’t have any discussions with anyone from Citibank before that Friday morning call, about what was going to be discussed in that call?”
“That’s correct, yes.”
“And so you told the ACCC you didn’t know what was actually going to be discussed before joining that Friday morning call, correct?”
“Not specifically, but it was obvious what it was going to be about I think, you know, it was a syndicate call.”
Mr Herbert-Smith agreed that he had told the ACCC words to the effect that he was flying blind before the call.
He said an ACCC officer, Jane Lin, had expressed some disagreement with his statement.
‘Difficult to believe’
“I think she found it difficult to believe that three people could come to a decision on that … but I disagreed … I could only speak for my own mind as to what I thought had happened and that’s what I thought and that’s what I articulated … “
Mr Strickland asked whether the ACCC officer had hinted that he was being less than fully frank.
“I think she was doing a normal investigative process. Just probing, probing a witness and yes, maybe she did think that, but she’s better to answer that question than me.”
Mr Herbert-Smith described some of the process by which he obtained derivative conditional immunity – from the primary immunity negotiated by his employer JPMorgan.
“Post the ANZ transaction I was offered or told that, you know, I should look at getting independent counsel.”
He told Mr Strickland that in the month after the ANZ transaction he had not considered that he was involved in cartel conduct at all.
But he said a series of communications had occurred among members of the syndicate which had covered questions of compliance and legal boundaries.
“I think there was, in phone calls amongst syndicate during that period, there was discussion where, you know, general discussions to ensure that compliance and legal ensured that we’d, you know, people maintained within the boundary so that we didn’t have anti-competitive issues and I think there was an ingress of emails or transcripts or recordings to that effect, which would hint to that, so, but I didn’t think there was an issue because of that.”
In relation to his decision on the Friday phone call to stay out of the market – a position also adopted by Citi and Deutsche – Mr Herbert-Smith said it had been his decision but it was not solely his own independent decision, it was a decision also informed by JPMorgan’s decision-making.
“It was also global management before electing to take on that position rather than allocating it to the hedge fund community.”
Mr Strickland: “But that was a decision made by someone in JPM?”
“Someone in the Hong Kong office or outside that?”
“Yes that’s correct.”
“… you told the ACCC on 23 March  that your words, with JPM staying out of the market – that was an independent decision you reached independent of the other two banks?”
“That’s correct …”
With the conclusion of Mr Strickland’s questions, prosecutor Peter Neil was immediately on his feet with a question about Herbert-Smith’s evidence that he had had no prior discussions with others in the syndicate. “What did you mean by that?” Mr Neil asked.
“Well, I had like 30 seconds’ notice and three seconds to make up my mind on that call. There was no opportunity to talk to staying out of the market on the Friday. It was, as it was said I think, flying blind on the phone call, so in answer to your question there was no prior discussion as to staying out of the market that day. That’s correct.”
Later Hament Dhanji SC, appearing for Michael Ormaechea, raised concerns about what he said was an “opinion” or “conclusion” presented in a witness statement from JPMorgan’s Oliver Bainbridge.
Mr Bainbridge’s statement included a paragraph concerning the phone call on Monday August 10, 2015, (the fourth critical phone call) where he stated: “Having now reviewed my handwritten notes relating to the Monday morning JLM [joint lead managers] call, I recall that participants on the call discussed and made a decision that the JLM’s [Citi, Deutsche and JP Morgan] would stay out of the market and would not commence selling the ANZ shares that day.”
Mr Dhanji continued: “That, your Honour, needs to be looked at in the context of what precedes that call, which is a meeting that he has with others at JPM [JPMorgan]. Yes, so this is a meeting amongst JPMorgan personnel prior to the critical Monday morning call, and what is being discussed there is legal advice that has been obtained.”
Mr Dhanji foreshadowed testing the evidence behind Mr Bainbridge’s “conclusion”.
Mr Bainbridge had already left Sydney and could not be called. He had in fact returned to London after numerous rounds of legal swordplay between barristers and the prosecution delayed the timetable.
Earlier in the day, Magistrate Giles indicated things were dragging out beyond the court’s resources. She had already queried which witnesses were still available. “Who do you think we might be able to speak to today or tomorrow?” she asked Neil.
“There’s no one from JPM,” Mr Neil replied. “Mr Bainbridge is in London.”
“No, Mr Bainbridge has gone back to his life,” her Honour responded with a nod to the metaphysical, capturing the world beyond her courtroom.
When she opened the hearing on Tuesday, December 10, Her Honour had pointedly raised concern about the time-consuming back and forth on sections of law, given the cross-examinations had been scheduled for months.
Developments overnight had seen all the defendants receive large files of statements from ACCC officers. Mr Strickland noted the reaction from his end of the bar table: “The upshot is, Your Honour, that as I understand it there will be applications by a number of defendants – in fact, I think all of the defendants – to expand the areas of cross-examination.”
Magistrate Giles by this point had battled several days of a severe flu or cold (she at one point remarked forlornly that her own phone could not recognise her). She addressed the room, before turning to Prosecutor Peter Neil SC: “I guess that leads into the question that I was going to open with, which was the chief’s compliments to everyone and is this going to finish on Friday? There seems to be a universal shake of the head. What do you say Mr Neil?”
Mr Neil responded there was a risk that it wouldn’t.
Tim Game SC, representing ANZ, pointed out the avalanche of material sent at short notice by the ACCC.
“Your Honour I think all of the defendants will be seeking an adjournment, at least until Thursday but the situation is this. We received around 9.30 last night a little under 100 pages of affidavits, with 280 pages of annexures from the three [ACCC] witnesses, one of whom is intended to start giving evidence this afternoon.”
Twenty minutes later the barristers were back to arguing about subpoenas and claims over privilege – with the added spur that different regulators had submitted documents in response to subpoenas that had redacted different things. For example, the Australian Securities and Investments Commission (which had a finger in a different part of the pie), had left unredacted some sentences that were redacted by the ACCC.
Mr Game: “There are some examples that go for pages and pages, Your Honour, of redactions.”
Her Honour: “If you all knew this was coming why did you set this down to this Friday? It just seems absurd.”
Mr Game: “We just got the subpoenas now, Your Honour. We have been fighting about the subpoenas.”
Her Honour: “I know. I’m sorry, I don’t mean to be cross at you.”
Mr Game: “I apologise, Your Honour, but I’m not really apologetic, I’m just saying I’m sorry.”
Her Honour: “I know.”
Magistrate Giles wearily made it clear there was no never-ending diary. “If you go into the New Year you will run up against my long service leave. You will then run up against my retirement. Yes, anyway.”
And this was just the committal hearing. She reminded the parties more than once last December that a trial lay ahead. “Look, we’re in a committal. We’re just in a committal. You’re on your way somewhere else,” she remarked.