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Citibank To Pay More Than $38 Mln For Improper Handling Of ADRs

The U.S. Securities and Exchange Commission said that Citibank N.A. has agreed to pay $38.7 million to settle charges of improper handling of "pre-released" American Depositary Receipts or ADRs.

The SEC found that Citibank improperly provided ADRs to brokers in thousands of pre-release transactions when neither the broker nor its customers had the foreign shares needed to support those new 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.

Without admitting or denying the SEC's findings, Citibank agreed to pay more than $20.9 million in disgorgement of ill-gotten gains plus $4.2 million in prejudgment interest and a $13.5 million penalty for a total of more than $38.7 million.

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