SEC slaps Jefferies with $1.25 million penalty over ADRs
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Agency says firm improperly borrowed securities from other brokers
Jefferies will pay nearly $4 million to settle charges brought by the Securities and Exchange Commission that the firm improperly handled “pre-released” American Depositary Receipts (ADRs).
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The firm agreed to disgorge more than $2.2 million in gains and pay over $468,000 in prejudgment interest and a $1.25 million penalty.
The practice of “pre-release” allows ADRs to be issued without the deposit of foreign shares, provided brokers receiving them 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 found that Jefferies improperly borrowed pre-released ADRs from other brokers when Jefferies should have known that those brokers did not own the foreign shares needed to support the ADRs. The order against Jefferies also found that it failed reasonably to supervise its securities lending desk personnel concerning borrowing pre-released ADRs from those brokers.
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The SEC said the action against Jefferies was its fourteenth against a bank or broker resulting from a widespread investigation into abusive ADR pre-release practices. The investigation has thus far resulted in monetary settlements exceeding $431 million, the SEC said in a release.
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