Frauds & Scandals | |
Frauds & Scandals | |
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Thursday, December 27, 2018
02:27AM / By US SEC
The Securities and Exchange Commission yesterday announced that JPMorgan
Chase Bank N.A. will pay more than $135 million to settle charges of
improper handling of “pre-released” American Depositary Receipts (ADRs).
ADRs – U.S. securities that represent foreign shares of a foreign
company – require a corresponding number of foreign shares to be held in
custody at a depositary bank. The practice of “pre-release” 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
ADR represents.
The SEC’s order found that JPMorgan improperly provided ADRs to brokers
in thousands of pre-release transactions when neither the broker nor its
customers had the foreign shares needed to support those new ADRs. Such
practices resulted in inflating the total number of a foreign issuer’s
tradeable securities, which resulted in abusive practices like inappropriate
short selling and dividend arbitrage that should not have been occurring.
This is the eighth action against a bank or broker, and fourth action
against a depositary bank, resulting from the SEC’s ongoing investigation into
abusive ADR pre-release practices. Information about ADRs is available
in a
SEC Investor Bulletin.
“With these charges against JPMorgan, the SEC has now held all four
depositary banks accountable for their fraudulent issuances of ADRs into an
unsuspecting market,” said Sanjay Wadhwa, Senior Associate Director of the
SEC’s New York Regional Office. “Our investigation continues into
brokerage firms that profited by making use of these improperly issued ADRs.”
Without admitting or denying the SEC’s findings, JPMorgan agreed to pay
disgorgement of more than $71 million in ill-gotten gains plus $14.4 million in
prejudgment interest and a $49.7 million penalty for total monetary relief of
more than $135 million.
The SEC’s order acknowledges JPMorgan’s cooperation in the investigation
and remedial acts.
The SEC’s continuing investigation is being conducted by Philip A.
Fortino, William Martin, Andrew Dean, Elzbieta Wraga, Joseph P. Ceglio, Richard
Hong, and Adam Grace of the New York Regional Office, and is being supervised
by Mr. Wadhwa.
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