June 14, 2019

In the SEC’s largest recovery from a broker for improper ADR practices, Industrial and Commercial Bank of China Financial Services LLC (ICBCFS) has agreed to pay more than $42 million for improperly handling pre-released American Depository Receipts (ADRs).  Because ADRs represent foreign shares of a foreign company, they usually require a deposit of a corresponding number of foreign shares, but can be pre-released if certain conditions are met.  ICBCFS allegedly facilitated the early issuance of ADRs in order to allow certain tax-advantaged borrowers to collect dividends without taxes.  This left the door open for abusive practices such as the inflation of securities held by foreign issuers, short selling, and dividend arbitrage.  SEC

Tagged in: Financial and Investment Fraud,