The US Securities and Exchange Commission has induced Wedbush Securities to pay more than $8.1 million to settle charges for improper handling of 'pre-released' American Depositary Receipts.

This is the SEC's 11th action against a bank or broker that stems from its investigation (still in progress) in abusive ADR pre-release practices, which, thus far, has resulted in monetary settlements exceeding $422 million.

ADRs – US 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, as long as the brokers who receive 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 that the ADR represents.

The SEC's order finds that Wedbush improperly obtained pre-released ADRs from depositary banks when Wedbush should have known that neither the firm nor its customers owned the foreign shares needed to support those ADRs. It thereby inflated 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.