Merrill to Pay $8M for Mishandling ADRs

 "The order against Merrill Lynch found that its policies, procedures and supervision failed to prevent and detect securities laws violations concerning borrowing pre-released ADRs from these middlemen."

ADRs — U.S. securities that represent foreign shares of a foreign company — require a corresponding number of foreign shares to be held at a depositary bank. In a "pre-release," ADRs can be issued without the deposit of foreign shares, if the parties receiving them have an agreement with a depositary bank and they or their clients own the same number of corresponding shares.

Merrill, which voluntarily stopped trading pre-release ADRs more than four years ago, agreed to pay more than $4.4 million in disgorgement of gains, over $724,000 in prejudgment interest and a $2.9 million penalty. It neither admitted nor denied the findings.

This news — which mainly affects institutional investors — comes about four months after JPMorgan Chase Bank agreed to pay $135 million to settle similar charges. Deutsche Bank paid $75 million, BNY Mellon $54 million, and Citigroup $38 million.  

"We are continuing to hold accountable financial institutions that engaged in abusive ADR practices," said Sanjay Wadhwa, senior associate director of the SEC's New York Regional Office, in a statement.