Merrill Lynch To Pay Over $8 Mln For Improper Handling Of ADRs

(RTTNews) - The U.S. Securities and Exchange Commission announced that Merrill Lynch, Pierce, Fenner & Smith Inc. will pay over $8 million to settle charges of improper handling of "pre-released" American Depositary Receipts or ADRs.

The SEC's order found that Merrill Lynch improperly borrowed pre-released ADRs from other brokers when Merrill Lynch should have known that those brokers - middlemen who obtained pre-released ADRs from depositaries - did not own the foreign shares needed to support those ADRs. Such practices resulted in inflating the total number of a foreign issuer's tradeable securities, which resulted in abusive practices like inappropriate short selling and dividend arbitrage that should not have been occurring.

The order against Merrill Lynch found that its policies, procedures, and supervision failed to prevent and detect securities laws violations concerning borrowing pre-released ADRs from these middlemen.

Without admitting or denying the SEC's findings, Merrill Lynch agreed to pay more than $4.4 million in disgorgement of ill-gotten gains plus over $724,000 in prejudgment interest and a $2.89 million penalty for total monetary relief of over $8 million.