ICB of China Financial Services faces ADR fine of more than $42 million
17 June 2019 Washington
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The Industrial and Commercial Bank of China Financial Services LLC (ICBCFS) will pay more than $42 million to settle charges for improper handling of 鈥減re-released鈥� American Depositary Receipts (ADRs).
The 网爆吃瓜 and Exchange Commission鈥檚 (SEC) order found that ICBCFS improperly obtained pre-released ADRs from depositary banks.
According to the SEC, 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 foreign issuer鈥檚 tradable securities and resulted in abusive practices such as inappropriate short selling and dividend arbitrage, the SEC noted.
In certain countries, demand for ADR borrowing increased around dividend record dates, so that certain tax-advantaged borrowers could鈥攖hrough a series of transactions鈥攃ollect dividends without any corresponding tax withholding.
Pre-released ADRs that were improperly obtained by ICBCFS were used to satisfy that demand, the SEC revealed.
Meanwhile, the settlement marks the largest recovery against a broker in the SEC鈥檚 ongoing investigation of ADR practices.
So far the investigation has resulted in settlements with 10 financial institutions exceeding $414 million.
Sanjay Wadhwa, senior associate director of the SEC鈥檚 New York regional office, commented: 鈥淲ith these charges, ICBCFS is being held accountable for its unlawful ADR practices.鈥�
鈥淏y 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.鈥�
The 网爆吃瓜 and Exchange Commission鈥檚 (SEC) order found that ICBCFS improperly obtained pre-released ADRs from depositary banks.
According to the SEC, 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 foreign issuer鈥檚 tradable securities and resulted in abusive practices such as inappropriate short selling and dividend arbitrage, the SEC noted.
In certain countries, demand for ADR borrowing increased around dividend record dates, so that certain tax-advantaged borrowers could鈥攖hrough a series of transactions鈥攃ollect dividends without any corresponding tax withholding.
Pre-released ADRs that were improperly obtained by ICBCFS were used to satisfy that demand, the SEC revealed.
Meanwhile, the settlement marks the largest recovery against a broker in the SEC鈥檚 ongoing investigation of ADR practices.
So far the investigation has resulted in settlements with 10 financial institutions exceeding $414 million.
Sanjay Wadhwa, senior associate director of the SEC鈥檚 New York regional office, commented: 鈥淲ith these charges, ICBCFS is being held accountable for its unlawful ADR practices.鈥�
鈥淏y 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.鈥�
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