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ITG Paying $24 Million for Improper Handling of ADRs - SEC
Broker-dealer ITG agreed to pay $24.4 million in disgorgement, prejudgment interest and penalties to settle SEC charges that it violated federal securities laws when it prompted the issuance of American Depository Receipts (ADRs) without possessing the underlying foreign shares.
ADRs are U.S. securities that represent shares of a foreign company, and for all issued ADRs there must be a corresponding number of foreign shares in custody. On behalf of counterparties, ITG obtained ADRs from depositary banks that administer ADR programs.
According to the SEC’s order … from 2011 to 2014, ITG facilitated transactions known as “pre-releases” of ADRs to its counterparties without owning the foreign shares or taking the necessary steps to ensure they were held in custody by the counterparty on whose behalf they were being obtained. Many of the ADRs obtained by ITG through pre-release transactions were ultimately used to engage in short selling and dividend arbitrage even though they may not have been backed by foreign shares.
The SEC investigation continues.
