Cantor Fitzgerald & Co. and BMO Capital Markets Corp. have become the latest broker-dealers to be hit by the Securities and Exchange Commission over improper handling of “pre-released” American Depositary Receipts, or ADRs.
The SEC said Friday that Cantor Fitzgerald & Co. will pay more than $647,000 and BMO Capital Markets will pay over $3.9 million to settle charges that they obtained pre-released ADRs when they should have known that the pre-release transactions were not backed by foreign shares.
Including Cantor and BMO, the SEC has levied actions against 13 financial institutions in its ongoing investigation into abusive ADR pre-release practices, which, thus far, has included monetary settlements exceeding $427 million.
ADRs are U.S. securities that represent foreign shares of a foreign company and require a corresponding number of foreign shares to be held in custody at a depositary bank.
The practice of “pre-release” allows ADRs to be issued without the deposit of foreign shares, provided brokers receiving the ADRs have an agreement with a depositary bank and the broker or its customer owns the number of foreign shares that corresponds to the number of shares the ADRs represent, the SEC explains.