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SEC fines Cantor Fitzgerald, BMO Capital Markets for alleged abuse of ADR pre-release practices

Ann Schmidt

Cantor Fitzgerald & Co. and BMO Capital Markets Corp. will each pay a fine to settle charges of improperly handling “pre-released” American Depositary Receipts (ADRs), according to the Securities and Exchange Commission (SEC).

Cantor Fitzgerald will pay $647,000 and BMO Capital Markets will pay $3.9 million, the SEC announced Friday.

ADRs are foreign stocks that are traded on U.S. exchanges and require a corresponding number of foreign shares to be held in custody at a depositary bank.

“Both Cantor Fitzgerald and BMO Capital obtained pre-released ADRs when they should have known that the pre-release transactions were not backed by foreign shares,” the announcement said.

“The SEC orders find that both brokers improperly obtained pre-released ADRs indirectly from other broker-dealers, and the order as to Cantor Fitzgerald finds that the firm also improperly obtained pre-released ADRs directly from depositary banks,” the announcement continued.

"The SEC continues to hold accountable parties that abused the ADR markets over an extended period of time," Sanjay Wadhwa, Senior Associate Director for Enforcement in the SEC's New York Regional Office said in the announcement. "U.S. investors who invest in foreign companies through ADRs have a right to expect that market professionals aren't gaming the system."

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In total, the SEC has charged 13 financial institutions for misusing “ADR pre-release practices,” the statement said. In total, that has led to financial settlements greater than $427 million. The SEC said its investigation is ongoing.

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