Wedbush Securities Inc. has agreed to pay more than $8.1 million to settle SEC charges that it made millions by improperly handling "pre-released" ADRs, the agency announced on Tuesday.
Between 2011 and 2013, the Los Angeles-based broker-dealer improperly obtained pre-released ADRs when it should have known that neither the firm nor its customers owned the foreign shares needed to support the ADRs, the SEC said in its complaint. ADRs, short for American Depositary Receipts, are U.S. securities that represent shares of foreign companies.
"Such practices resulted in inflating the total number of a foreign issuer's tradeable securities, which, in turn, resulted in abusive practices such as inappropriate short selling and dividend arbitrage," the agency said in a press release.
Wedbush, a registered broker-dealer and advisor, made about $4.9 million from transactions that utilized the pre-release ADRs, the SEC said in its complaint.
The broker-dealer, which cooperated with the SEC's investigation, consented to the agreement without admitting to or denying the allegations, according to the SEC.
Wedbush agreed to be censured and to pay disgorgement of over $4.8 million, more than $800,000 in prejudgment interest, and more than $2.4 million in penalty, for total monetary relief of more than $8.1 million, according to the SEC.
Wedbush co-presidents Rich Jablonski and Gary Wedbush released the following statement in regards to the settlement:
"Wedbush takes seriously its obligations under the securities laws and we are pleased to resolve this matter relating to conduct that we voluntarily ceased in 2013. 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."
The SEC noted that the case is part of a continuing investigation by the agency into ADR abuses.
"This is the SEC's 11th action against a bank or broker resulting from the SEC's ongoing investigation into abusive ADR pre-release practices, which, thus far, has resulted in monetary settlements exceeding $422 million," the agency said in the press release.