SEC settles American Depositary Receipts allegations against international bank subsidiary

Securities American Depositary Receipts Settlement Consent Order

On June 14, the SEC announced a $42 million settlement with a wholly-owned subsidiary of an international bank to resolve allegations that certain associated persons on its securities lending desk allegedly improperly pre-released American Depositary Receipts (ADRs), or “U.S. securities that represent shares in foreign companies.” According to the SEC, the subsidiary “improperly obtained pre-released ADRs from depositary banks when [the subsidiary] should have known that neither the firm nor its customers owned the foreign shares needed to support those ADRs.” The SEC asserts that this resulted in an inflated total number of foreign issuer’s tradeable securities and short selling and dividend arbitrage. The SEC alleged that these practices violated the Securities Act of 1933 and claimed that the subsidiary failed to reasonably supervise its securities personnel. The consent order requires the subsidiary to pay more than $24 million in disgorgement, roughly $4.4 in prejudgment interest, and a civil money penalty of approximately $14.3 million. The order acknowledges the subsidiary’s cooperation in the investigation.