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JPMorgan To Pay More Than $135 Million for Improper Handling of ADRs

Posted on December 27, 2018 at 8:30 AM

The SEC 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:

1) 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.

2) 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.

3) 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 an SEC Investor Bulletin.

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.

Read More:
https://www.sec.gov/news/press-release/2018-306" target="_blank">https/www.sec.gov/news/press-release/2018-306
https://www.sec.gov/litigation/admin/2018/33-10600.pdf" target="_blank">https/www.sec.gov/litigation/admin/2018/33-10600.pdf

Categories: Trading