January 12, 2016

Broker ITG will pay more than $24.4 million to settle charges that it violated federal securities laws when it prompted the issuance of American Depository Receipts (ADRs) without processing the underlying foreign shares. ADRs are U.S. securities that represent shares in a foreign company. For all issued ADRs, there must be a corresponding number of foreign shares in custody. On behalf of counterparties, ITG obtained ADRs from depository banks that administer ADR programs. The SEC’s order found that 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 custodied 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. SEC

Tagged in: Securities Fraud,