The SEC just dinged another Wall Street firm in a probe that's claimed more than $400M in fines

(BI) -- Wedbush Securities is the latest firm ensnared in an ongoing SEC investigation around mishandling so-called "pre-released" American Depositary Receipts.

The independent agency said Tuesday that Wedbush will pay more than $8.1 million to settle charges for improperly handling ADRs, or shares of foreign companies that trade in the US.

The announcement regarding Wedbush, a privately held brokerage and financial services firm based in Los Angeles, is the 11th action against a bank or broker in the SEC's ongoing probe. The firm has not admitted or denied the SEC's findings.

The SEC has looked into these practices around ADR for more than a year, and has fined firms including Deutsche BankJPMorgan,Citibank, and Merrill Lynch in recent months for similar abuses.

Wedbush's fine of more than $8.1 million pales in comparison to other settlements from larger US firms for similar ADR offenses. Deutsche Bank agreed to pay nearly $75 million, and JPMorgan agreed to pay more than $135 million in their respective settlements.

"Wedbush takes seriously its obligations under the securities laws and we are pleased to resolve this matter relating to conduct that we voluntarily ceased in 2013," Rich Jablonski and Gary Wedbush, the firm's co-presidents, said in a statement.

"This is one of several legacy regulatory matters that our leadership team has sought to resolve so that we can continue to focus on serving our clients to the best of our ability."

The practice of pre-releasing, when it comes to ADRs, means they can be issued without the deposit of foreign shares.

That is, provided the 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," according to the SEC's definition.

Wedbush should have known this was how the practice worked, but the firm did not handle these securities as such, the SEC said.

"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," the SEC said in a statement.

It added: "Such practices resulted in inflating 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."

Wedbush's failure to reasonably supervise its securities lending desk personnel is the latest in a line of regulatory actions against the firm involving a failure to supervise its employees.

Earlier this year, Wedbush settled with the SEC after it accused the firm of ignoring numerous red flags for years in what was ultimately an employee's "long-running pump-and-dump" scheme.

The firm had failed to reasonably supervise the longtime employee, who was later terminated after targeting retail investors in her scheme.


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