(HedgeCo.Net) The Securities and Exchange Commission has announced that Industrial and Commercial Bank of China Financial Services LLC (ICBCFS), a wholly-owned subsidiary of Industrial and Commercial Bank of China Limited, will pay more than $42 million to settle charges for improper handling of \u201cpre-released\u201d American Depositary Receipts (ADRs). The settlement marks the largest recovery against a broker in the SEC\u2019s ongoing investigation of ADR practices, which thus far has resulted in settlements with 10 financial institutions exceeding $414 million.<\/p>\n
ADRs \u2013 U.S. securities that represent foreign shares of a foreign company \u2013 require a corresponding number of foreign shares to be held in custody at a depositary bank. The practice of \u201cpre-release\u201d allows ADRs to be issued without the deposit of foreign shares, provided brokers receiving them have an agreement with a depositary bank and the broker or its customer owns the number of foreign shares that corresponds to the number of shares the ADRs represent. <\/p>\n
The SEC\u2019s order finds that ICBCFS improperly obtained pre-released ADRs from depositary banks when ICBCFS should have known that neither the firm nor its customers owned the foreign shares needed to support those ADRs. This inflated the total number of a foreign issuer\u2019s tradeable securities and resulted in abusive practices such as inappropriate short selling and dividend arbitrage. In certain countries, demand for ADR borrowing increased around dividend record dates, so that certain tax-advantaged borrowers could \u2013 through a series of transactions \u2013 collect dividends without any corresponding tax withholding. Pre-released ADRs that were improperly obtained by ICBCFS were used to satisfy that demand.<\/p>\n
\u201cWith these charges, ICBCFS is being held accountable for its unlawful ADR practices,\u201d said Sanjay Wadhwa, Senior Associate Director of the SEC\u2019s New York Regional Office. \u201cBy falsely representing that the firm or its customers owned the foreign shares to support pre-release transactions, ICBCFS often played the role of middleman between depositary banks and other market participants in the issuance of what amounted to phantom securities.\u201d<\/p>\n
The SEC\u2019s order finds that ICBCFS violated the antifraud provisions of Section 17(a)(3) of the Securities Act of 1933 and failed reasonably to supervise its securities lending desk personnel. Without admitting or denying the SEC\u2019s findings, ICBCFS agreed to be censured, return nearly $24 million in ill-gotten gains, and pay $4.4 million in prejudgment interest and a $14.3 million penalty. <\/p>\n
The U.S. Department of Justice\u2019s Antitrust Division today separately announced that ICBCFS pled guilty to an antitrust charge relating to the bid-rigging of pre-released ADRs by the same securities lending desk. <\/p>\n","protected":false},"excerpt":{"rendered":"
(HedgeCo.Net) The Securities and Exchange Commission has announced that Industrial and Commercial Bank of China Financial Services LLC (ICBCFS), a wholly-owned subsidiary of Industrial and Commercial Bank of China Limited, will pay more than $42 million to settle charges for […]<\/p>\n","protected":false},"author":4,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[16,3,16048],"tags":[],"class_list":["post-69711","post","type-post","status-publish","format-standard","hentry","category-hedgeco-networks-press-releases","category-hedgeco-news","category-hedgecovest-news"],"_links":{"self":[{"href":"https:\/\/www.hedgeco.net\/news\/wp-json\/wp\/v2\/posts\/69711","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.hedgeco.net\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.hedgeco.net\/news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.hedgeco.net\/news\/wp-json\/wp\/v2\/users\/4"}],"replies":[{"embeddable":true,"href":"https:\/\/www.hedgeco.net\/news\/wp-json\/wp\/v2\/comments?post=69711"}],"version-history":[{"count":1,"href":"https:\/\/www.hedgeco.net\/news\/wp-json\/wp\/v2\/posts\/69711\/revisions"}],"predecessor-version":[{"id":69712,"href":"https:\/\/www.hedgeco.net\/news\/wp-json\/wp\/v2\/posts\/69711\/revisions\/69712"}],"wp:attachment":[{"href":"https:\/\/www.hedgeco.net\/news\/wp-json\/wp\/v2\/media?parent=69711"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.hedgeco.net\/news\/wp-json\/wp\/v2\/categories?post=69711"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.hedgeco.net\/news\/wp-json\/wp\/v2\/tags?post=69711"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}