SEC Charges Former Individual Broker With Improper Handling of ADRs
Aug. 29, 2019
FILE NO. 3-19395
August 29, 2019 - The Securities and Exchange Commission today announced that Wendy Katz, formerly employed on the securities lending desk at ITG Inc., has agreed to settle charges that she improperly handled transactions involving American Depositary Receipts ("ADRs").
ADRs - U.S. securities that represent foreign shares of a foreign company - require a corresponding number of foreign shares to be held in custody at a depositary bank. 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.
According to the SEC's order, Katz, while working on ITG's securities lending desk from 2011 to 2014, understood that when she obtained pre-released ADRs on behalf of ITG, ITG did not own the corresponding foreign shares. The order finds that despite this understanding, Katz did not take reasonable steps to determine whether the counterparties borrowing the pre-released ADRs owned the foreign shares. Katz's conduct resulted in the issuance of ADRs that in many instances were not backed by ordinary shares as required for the relevant pre-release transaction.
The SEC's order finds that Katz violated the antifraud provisions of Section 17(a)(3) of the Securities Act of 1933. Without admitting or denying the SEC's findings, Katz consented to the order and agreed to pay a penalty of $20,000. The order censures Katz and prohibits her from acting in an associational capacity with the right to reapply after eighteen months.
The SEC's continuing investigation is being conducted by Andrew Dean, Elzbieta Wraga, Philip Fortino, Joseph Ceglio, Richard Hong, and Adam Grace of the New York Regional Office. The case is being supervised by Sanjay Wadhwa.