In what appears to be an industry-wide sweep involving American Depositary Receipts (“ADRs”), over the last few years the SEC has brought enforcement actions against 13 financial institutions – including depositary banks and brokers that borrow and lend “pre-released” ADRs. On August 16, 2019, the SEC announced the latest of these actions against two brokers – Cantor Fitzgerald & Co. and BMO Capital Markets Corporation – for charges related to the improper borrowing and lending of “pre-released” ADRs without obtaining or locating the foreign shares purportedly underlying those ADRs. The SEC’s cases have targeted conduct going back as far as seven years from the date of the announced settlements, and resulted in monetary settlements in excess of $427 million. While these actions may be on the wane given the apparent contraction of the pre-release market, the SEC’s actions signal that it is willing to bring cases to police conduct it views as having a negative effect on markets generally, even in the absence of readily-identifiable victims.
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