20th August 2019

Cantor Fitzgerald and BMO Capital charged for improper handling of ADRs

The Securities & Exchange Commission (SEC) has announced that broker Cantor Fitzgerald & Co. will pay more than $647k and broker BMO Capital Markets Corporation will pay over $3.9m to settle charges of improper handling of "pre-released" American Depositary Receipts (ADRs). With these actions, the SEC has charged 13 financial institutions in its ongoing investigation into abusive ADR pre-release practices, which, thus far, has included monetary settlements exceeding $427m.

According to the SEC's orders, 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 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.

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

The SEC's order as to Cantor Fitzgerald finds that the firm violated Section 17(a)(3) of the Securities Act of 1933 and failed reasonably to supervise its securities lending desk personnel. Without admitting or denying the SEC's findings, Cantor Fitzgerald agreed to pay over $359k in disgorgement of ill-gotten gains, over $88k in prejudgment interest, and a $200k penalty, totalling more than $647k.

With respect to BMO Capital, the SEC's order finds that it failed reasonably to supervise its securities lending desk personnel. Without admitting or denying the SEC's findings, BMO Capital agreed to pay over $2.2m in disgorgement of ill-gotten gains, over $546k in prejudgment interest, and a $1.2m penalty, totalling more than $3.9m. The SEC's orders acknowledge each firm's cooperation in the investigation.