On 18 June 2019, SEC fined Wedbush $8.1mn for mishandling ADRs.
- Wedbush Securities Inc. mishandled pre-released American depositary receipts.
- Follows 10 prior SEC enforcement actions from investigation into abusive ADR
pre-release practices, which resulted in monetary settlements of over $422mn.
- ADRs are US securities representing shares in a foreign company, and require a
corresponding number of foreign shares be held in custody at a depositary bank.
- Pre-release allows ADR to be issued without a deposit of foreign shares in bank.
- As long as broker or customer, owns the corresponding number foreign shares,
and the broker receiving the ADRs has current agreement with depositary bank.
- Wedbush improperly obtained pre-released ADRs from depositary banks because
neither the firm nor its customers owned foreign shares needed to support ADRs.
- This resulted in inflating total number of foreign issuer's tradeable securities, that
led to abusive practices, such as inappropriate short selling and dividend arbitrage.
- Wedbush further failed to reasonably supervise securities lending desk personnel.