December 17, 2018

Bank of New York Mellon has agreed to pay more than $54 million to settle charges that it improperly handled “pre-released” American Depositary Receipts (ADRs).  ADRs are securities that represent shares in a foreign company, and ordinarily require that a corresponding number of foreign shares be held at a depository bank. However, “pre-release” allows ADRs to be issued without the deposit of foreign shares, provided that brokers have an agreement with a depository bank and the broker or its customer owns the required number of foreign shares. The SEC found that BNY Mellon improperly provided ADRs to brokers when, in fact, neither the broker nor its customer had the foreign shares needed to support those new ADRs, a practice which can result in inappropriate short selling and dividend arbitrage. SEC

Tagged in: Financial Institution Fraud, Regulatory Violations, Securities Fraud,