The Securities and Exchange Commission said Friday that New York-based brokerage firm Banca IMI Securities Corp. (BISC), an indirect, wholly owned U.S. subsidiary of Italian bank Intesa Sanpaolo SpA, has agreed to pay more than $35 million to settle charges that it violated federal securities laws when it requested the issuance of and received American Depositary Receipts without possessing the underlying foreign shares.
The SEC’s order found that BISC obtained pre-released ADRs and lent them to counterparties without satisfying the proper requirements.
“BISC’s improper handling of ADRs, which lasted from at least January 2011 to August 2015, made it possible for such ADRs to be used for inappropriate short selling or inappropriate profiting around dividend record dates,” the order states.
In certain countries, the order continues, “demand for ADR borrowing increased around dividend record dates so that certain tax-advantaged borrowers could, through a series of transactions, collect dividends without any tax withholding. Pre-released ADRs that were improperly issued were used to satisfy that demand.”
ADRs are U.S. securities that represent foreign shares of a foreign company.