JPMorgan Chase reaches settlement with SEC for alleged mishandling of American Depositary Receipts

By Marian Johns | Jan 4, 2019

WASHINGTON, D.C. — JPMorgan Chase Bank NA has reached a settlement of more than $135 million with the U.S. Securities and Exchange Commission (SEC) over charges the bank issued "pre-released" American Depositary Receipts (ADRs) relating to foreign company shares.

According to the SEC, JPMorgan allegedly mishandled the pre-release of the ADRs, which require having a certain number of foreign shares to be held in a depository bank or the receiving broker having a agreement with the bank and either the broker or the broker's customer owning a corresponding number of foreign shares relating to the ADR. 

JP Morgan provided thousands of pre-release ADRs without the broker or customer having the needed foreign shares, according to the SEC.  JPMorgan's actions caused an inflation of the "total number of a foreign issuer's tradable securities," which led to "short selling" and "dividend arbitrage," the SEC said. 

“With these charges against JPMorgan, the SEC has held all four depositary banks accountable for their fraudulent issuances of ADRs into an unsuspecting market,” said SEC New York regional office senior associate director Sanjay Wadhwa in a statement. “Our investigation continues into brokerage firms that profited by making use of these improperly issued ADRs.”

The settlement includes JPMorgan paying disgorgement of more than $71 million in "ill-gotten gains" as well as $14.4 million in pre-judgment interest. The bank will also pay a $49.7 million penalty, according to the SEC. 

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