Two U.S.-based subsidiaries of Deutsche Bank AG agreed Friday to pay nearly $75 million to the Securities and Exchange Commission to settle charges of improper handling of “pre-released” American depositary receipts (ADRs).
The case stems from a continuing SEC investigation into abuses involving pre-released ADRs, according to the securities regulator.
The SEC found that Deutsche Bank Trust Co. Americas (DBTCA), a depositary bank, and Deutsche Bank Securities Inc. (DBSI), a registered broker-dealer, allowed pre-released ADRs to be used for abusive practices, including inappropriate short selling and inappropriate profiting around dividend payouts.
ADRs — U.S. securities that represent foreign shares of a foreign company — require a corresponding number of foreign shares to be held in custody at a depositary bank.
“The SEC’s actions involving pre-released ADRs have revealed industry-wide abuses,” said Stephanie Avakian, co-director of the SEC Enforcement Division in a statement. “Failures at each institutional link in the chain of these transactions, from depositary bank to broker-dealer, left the markets for those ADRs ripe for potential abuse at the expense of ADR holders.”
Without admitting or denying the SEC’s findings, DBTCA agreed to return more than $44.4 million of alleged ill-gotten gains plus $6.6 million in prejudgment interest and a more than $22.2 million penalty, nearly $73.3 million in total.
DBSI, also without admitting or denying the SEC’s findings, agreed to pay nearly $1.6 million, representing $1.1 million in disgorgement and prejudgment interest and a nearly $500,000 penalty.