The Securities and Exchange Commission (SEC) has announced that SG Americas Securities LLC will pay more than $800,000 to settle charges of improper handling of “pre-released” American Depositary Receipts (ADRs), predominantly by its predecessor entity.
In its order against SG Americas, a registered broker-dealer and subsidiary of Paris-based Société Générale S.A., the SEC found that the misconduct of predecessor entity Newedge USA LLC allowed pre-released ADRs to be issued that were not backed by the appropriate number of ordinary shares. This is the fifth action against a depository bank or broker for abusive pre-release practices resulting from the SEC’s ongoing investigation into abuses involving pre-released ADRs. Such practices have the potential to artificially inflate the total number of a foreign issuer’s tradeable securities, diluting existing shareholders’ equity. In addition, some of the pre-released ADRs were used for short selling that may not otherwise have occurred, which could suppress the price of the issuer’s securities. Information about ADRs is available in an SEC Investor Bulletin.
The SEC found that Newedge improperly provided thousands of pre-released ADRs over a more than three-year period when neither the broker nor its customers had the requisite shares.
The SEC continues to hold accountable those parties that abused the ADR markets,” said Sanjay Wadhwa, Senior Associate Director for Enforcement in the SEC’s New York Regional Office. “U.S. investors who invest in foreign companies through ADRs have a right to expect that issuances of those ADRs are properly backed by foreign shares.
The SEC’s order finds that SG Americas violated Section 17(a)(3) of the Securities Act of 1933 and failed reasonably to supervise its securities lending desk personnel. Without admitting or denying the SEC’s findings, SG Americas agreed to return more than $480,000 of alleged ill-gotten gains plus $82,000 in prejudgment interest and a $250,000 penalty, more than $800,000 in total. The SEC’s order acknowledges the firm’s cooperation in the investigation and remedial acts.
The SEC’s continuing industry-wide investigation is being conducted by Philip Fortino, Andrew Dean, William Martin, Elzbieta Wraga, Joseph Ceglio, Richard Hong, and Adam Grace of the New York Regional Office and supervised by Mr. Wadhwa.