Supervisor Charged for Role in Brokerage Firm’s Improper Handling of ADRs
FOR IMMEDIATE RELEASE
Washington D.C., Oct. 15, 2019 —
The Securities and Exchange Commission today announced that Domenick Migliorato, a former supervisor of the securities lending desk at Industrial and Commercial Bank of China Financial Services LLC (ICBCFS), has agreed to settle charges for his supervisory failures involving the improper handling of transactions involving American Depositary Receipts (ADRs). Earlier this year, ICBCFS agreed to pay more than $42 million to settle the SEC’s charges against the firm.
ADRs are U.S. securities that represent foreign shares of a foreign company and 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.
The SEC’s order finds that from 2011 through 2014, Migliorato was responsible for the firm’s compliance with these requirements of pre-release. Under Migliorato’s watch, personnel on ICBCFS’s securities lending desk failed to take reasonable steps to determine whether the proper number of foreign shares were owned and held by ICBCFS or its customers. This failure opened up the possibility that the ADRs could be used improperly for short selling or dividend arbitrage.
“The SEC is committed to holding responsible those whose actions or inactions resulted in abuses in the ADR markets over a lengthy period of time,” said Sanjay Wadhwa, Senior Associate Director for Enforcement in the SEC’s New York Regional Office. “Migliorato’s lax supervision may have permitted market professionals to game the system at the expense of U.S. investors investing in foreign companies through ADRs.”
Migliorato has agreed to settle the charges and pay a $150,000 penalty. He also is prohibited from acting in a supervisory capacity for at least three years.
Migliorato agreed to the settlement without admitting or denying the SEC’s findings that under Section 15(b)(6) of the Securities Exchange Act of 1934 he failed reasonably to supervise members of ICBCFS’s securities lending desk with a view to preventing and detecting violations of Section 17(a)(3) of the Securities Act of 1933.
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 Mr. Wadhwa.