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ITG to pay $24.4 million to settle ADR securities violations

by / Friday, 13 January 2017 / Published in Uncategorized

Linus Unah – Fourth Estate Contributor

Washington, D.C., United States (4E) – New York-headquartered broker Investment Technology Group Inc. has agreed to pay more than $24.4 million to settle claims that it prompted the issuance of American depository receipts or ADRs without possessing the underlying foreign shares, the U.S. Securities and Exchange Commission (SEC) said Thursday.

ADRs allow U.S. investors to invest in foreign companies without having to purchase the shares in the foreign markets, and allow foreign companies to get increased exposure to U.S. markets.

The U.S. regulator said ITG obtained ADRs from depository banks on behalf of counterparties .

The SEC found that ITG facilitated transactions known as “pre-releases” of ADRs to its counterparties without owning the foreign shares or ensuring they were in custody of the counterparty on whose behalf they were being obtained.

According to the federal securities regulator, many of the ADRs obtained by the brokerage firm through pre-release transactions were ultimately used to engage in short selling and dividend arbitrage.

ITG’s improper handling of ADRs lasted from 2011 to 2014, the SEC said.

“ITG’s failure to properly supervise its securities lending desk caused ADRs to be issued that were not backed by actual shares, leaving them ripe for potential market abuse,” Andrew M. Calamari, director of the SEC’s New York regional office, said in a statement.

The SEC’s order found that ITG violated federal securities laws and failed to supervise its employees on its securities lending desk.

The firm agreed to pay back more than $15 million, plus more than $1.8 million in interest and more than $7.5 million in penalties.

ITG also agreed to be censured, but didn’t admit or deny the SEC findings.

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