Old stockbrokers must be spluttering into their gin with amazement as they watch the ACCC’s cartel case against ANZ Bank, Deutsche and Citigroup over the bank’s $3 billion raising in August 2015.

Meanwhile, six high profile executives, including ANZ group treasurer Rick Moscati and a former head of Citigroup, face criminal charges laid by the Commonwealth director of Public Prosecutions in the next few days, with court hearings due to start on July 3. 

The point of the case is that the ACCC believes the six indulged in cartel behaviour by declaring that the $2.5 billion institutional element of the issue had been “raised” when in fact the underwriters were still carrying 25.5 million shares out of the 80.8 million on offer, because they hadn’t found takers for them. 

“ANZ completes $2.5billion Institutional Equity Placement” was the deathless heading on the announcement sent to the ASX on the morning of Friday August 7 2015. 

That, ladies and gentlemen, is what has happened since time immemorial in the share broking business in the case of a rapid institutional placement, which is what this was. The two key words you need to remember are Underwriting and Shortfall.

An extra curiosity is that a third underwriter, JP Morgan, appears to have been given a free pass because it reported the other three, including its long term client ANZ, to the ACCC. Something has clearly changed in the way that underwriting shortfalls are being perceived. 

The old hands can see with adamantine clarity what happened: the underwriters were left with the stock because at $30.95 it was not being offered at much of a discount to the previous close of $32.58, five per cent to be precise. 

The standard wheeze for fund managers is to pick up stock in a placement at a better discount than that, sell off an equivalent number at market and then chalk up the capital gain. That didn’t happen here because the issuers were being so mean with the pricing that the usual exercise wasn’t worth it.

But has there been a dastardly crime committed? That’s up to the legal process but what we are really looking at here is a test case, because until now no one has ever seriously challenged the way underwriting has historically worked. 

As with the production of sausages, it has long been the case with failed share issues that you are really better off not knowing the intimate details of what goes on behind the scenes. 

What has invariably happened in the past is that if the raising is not going to plan, the various underwriters have got together and decided their strategy for offloading the shares without upsetting the market. 

In this instance it looks as though they dumped the stock as soon as they could once a trading halt was lifted on the morning of Friday August 7. 

The 25.5 million shares were probably part of the 32 million that went through the ASX on that day, pushing the stock price down to $30.14, which was 81 cents below the issue price and a whopping $2.44 or 7.4 per cent below the previous close, on August 6 of 2015.

When the word cartel comes up for discussion around financial markets, most people think back to the Visy-Amcor case, where the two packaging companies were forced to cough up $95 million in March 2011 after admitting to the ACCC that they had collaborated illegally between 2000 and 2004 not to compete on customers, and to push prices up. In that instance Visy copped most of the penalty, as it was Amcor that fessed up.

It was all based on a quiet lunchtime chat between Visy founder Richard Pratt and Amcor CEO Russell Jones at a pub in Richmond, Melbourne, in 2001.

Unlike the uncontested Visy case, this one is understood to have featured a very un-private video meeting involving ANZ, Deutsche, Citi and JP Morgan, no doubt discussing how to manage the shortfall without cruelling the share price. 

The six named defendants are all planning to plead not guilty. 

So we can look forward to the public spectacle of the irresistible force of the Rod Sims’ ACCC meeting the immovable object of the traditional underwriting process. 

In the ACCC corner, the law says that if different organisations act in concert to control the price of a good or service, then that’s cartel behaviour.

In the investment banking corner, they would say that this is how underwriting sometimes has to work. In such instances, if the underwriters fess up with full transparency to the existence of a shortfall, the stock price goes into a dive, so instead they are compelled to hold the stock and tell the market the issue is done and dusted. 

Which it sort of was. That announcement to the ASX was probably legally correct, since the underwriters did indeed own the stock. What’s clear in this case is that the entire market knew the investment banks were long the stock. 

While a leak is always a possibility to explain why word got out, the more prosaic explanation comes from the fact that the deal was done as an “accelerated book-build” with a floor price of $30.95. And as soon as the ANZ said the deal had been done at that price, wise heads would have known that demand for the issue had never got off the $30.95 launching pad. Any serious demand for stock would have pushed the book build price upwards from there, but it didn’t happen. 

Conclusion? We’re in new territory here. Underwriting has always been a cloak and dagger business in which the full facts seldom get an early airing unless an issue has gone off well. 

But if the ACCC gets its scalps on this one and traditional methods of quick equity raising become outlawed, how else will it be possible to stage a quick-fire institutional placement in the future?

What is concerning is that such a question is of no concern either to the ACCC or the legal system, even though it is the bedrock of what we now seem to call the investment banking industry. That is a real worry.