The house always wins in this hush-hush multibillion-dollar global securities scam — and the feds are onto it, according to John Germinario, an international banker and former top executive at Citigroup and Bank of New York.
The ill-gotten payout in this jackpot is kept by the major US depositary banks in a massive swindle of US shareholders and public companies wanting to get into foreign stock markets such as China, he claims.
And the losers? Investors — including household names in the hedge-fund world using the old-fashioned American Depositary Receipts (ADRs), certificates in shares of foreign companies traded on American exchanges; and their equivalent, known as Global Depositary Receipts (GDRs), traded on foreign exchanges.
“It is corrupt to the core,” Germinario, 60, told The Post Thursday from his home in Las Vegas. “ADRs and GDRs are big money — operating in an antiquated system rigged by the depositary banks. I call them the mafia. And they are whacking everybody, including ADR shareholders.”
Germinario, an industry whistleblower who provides regulators an expert’s account of this alleged corruption, warns of black eyes in the coming months — legal cases and Securities and Exchange Commission probes that could rock the very foundations of Wall Street.
“You can say the SEC office of enforcement is currently investigating the banks and has been for the past year,” he said, staying mum on specifics. The SEC declined comment.
There are at least two recent lawsuits for now that take the “casino” to task.
And these are the first in history by ADR shareholders against depositary banks, in this case Citibank and JPMorgan, according to Germinario. In the Citibank case, filed last month in US District Court in Arkansas, the investors claim the bank docked fees from dividends and cash distributions by foreign companies without proper disclosure — claiming damages of $5 million plus court costs.
In the JPMorgan lawsuit filed in May, Benjamin Michael Merryman, also named in the Citi lawsuit, claims, along with his trusts, that the bank deliberately took questionable foreign-exchange rates converting cash distributions and dividends from companies in which clients of JPMorgan held ADRs.
The latest alleged losses are on top of the billions of dollars the depositary banks swindle each year from ADR participants, says Germinario.
And with some 2,500 or more ADRs alone — trillions of dollars riding on depositary receipts — Germinario calls them an anachronism in today’s sophisticated high-speed markets, a throwback to their launch in the 1920s.
“ADRs and GDRs are financial products that offer unrestricted and largely unregulated access to modernized international markets that allow for gross share-trading inefficiencies — and ease of global corruption by the banking source,” Germinario said.
Among Germinario’s catalog of rogue activity:
- Depositary Receipts manipulated for money-laundering, tax avoidance, pump-and-dump, bribery and shareholder dilution through naked short-selling regulations.
- Depository banks paying public companies sums ranging from $5 million to $90 million to nab accounts, then coming back to them with multimillion-dollar fees for depositary services. Fees are typically “uniform and fixed” across the industry, says Germinario. The banks even dipped into the government’s Troubled Asset Relief Program money to finance their schemes, Germinario says.
- Unpaid taxes: Back in 2005, Germinario and his team went to the SEC and IRS, claiming the depository banks did not pay their proper taxes. He says at least $550 million has since been recovered.
Germinario is hardly the first to blow the whistle. But he might be the most high-profile bank executive to go public on ADRs and GDRs.
None of the banks mentioned returned calls for comment.