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JPMorgan to pay penalty of $135 million for misconduct that occurred between 2011 and early 2015


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JPMorgan Chase agreed to pay $135 million to settle claims that it improperly handled thousands of transactions involving foreign companies’ shares, the latest penalty in a wide-ranging probe of misconduct in the market.

JPMorgan improperly provided American depositary receipts for foreign shares that weren’t in the bank’s custody, which led the bank to inflate the number of a foreign company’s tradable shares, the Securities and Exchange Commission said Wednesday. The conduct cited by regulators occurred between 2011 and early 2015 in the market for ADRs, a securities product the bank created nearly a century ago.

“With these charges against JPMorgan, the SEC has now held all four depositary banks accountable for their fraudulent issuances of ADRs into an unsuspecting market,” said Sanjay Wadhwa, an official in the SEC’s New York office.

“We’re pleased to have resolved this matter, which is related to an industry practice we voluntarily ended a few years ago,” said JPMorgan spokesman Brian Marchiony. The bank, which cooperated with the investigation, didn’t admit or deny the SEC’s findings.

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The SEC has been looking into whether big banks have been mishandling securities in the ADR market in recent years, and Wednesday’s settlement with JPMorgan is the eighth action taken as part of the probe.

In the past six months, the SEC has also announced ADR-related settlements with three other banks: BNY Mellon, which agreed to pay more than $54 million; Citigroup Inc., which agreed to pay more than $38 million; and Deutsche Bank AG , which agreed to pay more than $75 million.

The SEC said an investigation into broker-dealer conduct in the market is continuing.

Created by J.P. Morgan in 1927, ADRs were designed to help investors avoid many of the complexities and costs of directly owning shares overseas while helping foreign companies widen their investor base in the U.S.



Foreign companies transfer shares to the banks, which use them to back corresponding securities issued to U.S. investors. The securities track the price of the underlying shares. Brokers who sell or transfer ADRs are typically responsible for ensuring that a matching number of foreign shares have been deposited with a custodian.

More than 74 billion depositary receipts, worth more than $2 trillion, were traded in the first half of 2018, according to data from Bank of New York Mellon Corp.

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