Wedbush Securities Fined $8.1 Million after SEC Investigation of ADR Abuse
Wedbush Securities will pay $8.1 million to settle charges stating that the firm improperly handled American Depository Receipts (ADRs); leaving the ADR markets open for abuse.
Wedbush Obtained Pre-Released ADRs
Wedbush, a privately held financial services firm based in Los Angeles, allegedly obtained pre-released ADRs from depository banks that did not own sufficient shares necessary to support the ADRs. The alleged activity occurred between 2011-2013, generating $4.8 million in revenue before Wedbush ended its pre-release ADR activity voluntarily in late 2013.
Pre-Released ADRs Inflates Market
The practice of issuing pre-release ADRs inflates from the total number of foreign issuers’ tradable securities; resulting in abusive behaviors such as short selling and dividend arbitrage.
According to the SEC, Wedbush should have known that neither the firm nor its customers owned the foreign shares required to support the ADRs. Wedbush was found negligent in the supervision of its securities lending desk and in failing to put in place appropriate policies and procedures to ensure its lending desk complied with its obligations.
Wedbush neither admitted nor denied the investigation findings, but agreed to pay disgorgement of more than $4.8 million, $800,000 in prejudgment interest, and $2.4 million in penalties.
Wedbush is a Repeat Offender
Regulators have fined Wedbush numerous times over the past decade and Wedbush has paid millions of dollars to settle various charges of supervisory failures against the firm. If appears, however, that Wedbush Securities is simply thumbing its nose at securities regulators, demonstrating an unwillingness to comply with the laws and regulations that govern its securities activities. Rather, the firm appears to treat regulatory fines as nothing more than a cost of doing business. Such conduct reflects a lack of respect for the rules and regulations that govern Wedbush’s business and a lack of concern for the integrity of the securities markets or for the safety of investors.
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