Articles Posted in #SEC charges Bank Supervisor

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.