Wedbush to Pay $8.1 Million over Handling of ADRs
Los Angeles-based broker-dealer Wedbush Securities agreed to pay $8.1 million to settle charges it mishandled “pre-released” American Depositary Receipts, according to the Securities and Exchange Commission.The penalty, which Wedbush agreed to pay without admitting or denying the findings, includes disgorgement of $4.8 million, more than $800,000 in interest and a penalty of $2.4 million.
The sanction is the 11th assessed by the regulator in its continuing investigation of shoddy practices used by broker-dealers to obtain ADRs from depositary banks when neither they nor their customers owned the foreign shares to support them.
For Wedbush, the findings continue a run of regulatory settlements involving net capital and sales violations that ultimately led to the resignation of founder Ed Wedbush last May as chief executive. The SEC has referred to the company as a “recidivist” firm, but the firm’s cooperation in the ADR investigation and its remediation efforts helped moderate the sanctions imposed, the SEC said.
“This is one of several legacy regulatory matters that our leadership team has sought to resolve so that we can continue to focus on serving our clients to the best of our ability,” Wedbush Co-Presidents Rich Jablonski and Gary Wedbush said in a prepared statement.
The SEC alleged that Wedbush improperly obtained pre-released ADRs from banks between 2011 and 2013, and then loaned them to broker-dealer customers. Such practices lead to abuses including inappropriate short selling, dividend arbitrage and inflation of the total number of shares of a foreign issuer’s tradeable securities, according to the SEC.
“Wedbush was one of numerous market participants that should have known its actions left the ADR markets ripe for abuse,” Sanjay Wadhwa, a senior associate director of the SEC’s New York regional office, said in a prepared statement issued Tuesday.
Wedbush, which was founded in 1955 and has around 400 brokers in its employee and independent channels, ended its pre-release ADR business in late 2013 before the SEC inquiry, a spokeswoman said.
Two months before Ed Wedbush stepped down as CEO last year, the SEC found that it ignored red flags about a “pump and dump” scheme by one of its brokers. The firm paid $2.5 million at the time to the SEC and Financial Industry Regulatory Authority for violating net capital and customer protection rules.
The SEC’s ADR probe has in settlements to date of over $422 million, the Commision said. BNY Mellon in December agreed to pay more than $54 million over the handling of “pre-released” ADRs, while Merrill Lynch in March agreed to pay $8 million.