ADRs are securities listed on the US stock markets that represent shares of companies listed in other countries. To issue ADR it is necessary that a certain number of shares remain in custody in a US bank, which acts as depository.
However, the SEC allows the practice of prior issuance, through which ADR of a foreign company can be put into circulation without having the shares deposited. For this, it is necessary that there is an agreement with the depositary bank that guarantees that the stockbroker that will issue such securities, or its client, holds the number of foreign shares that the ADR represents.
Despite this, the US market regulator has ensured that Citibank allowed "thousands of transactions" within the framework of these previous issuances without the stockbrokers that made them or their clients having the necessary actions to back those ADRs.
"These practices caused inflation in the total number of shares of foreign issuers, which led to abusive practices, such as inappropriate sales and dividend arbitrage, which should not have occurred," the SEC said in a statement.
Citibank has neither admitted nor denied this accusation, but has reached an agreement to return 20.9 million dollars (18.2 million euros) to those affected, as well as 4.2 million dollars (3.7 million euros) ) for interest and a fine of 13.5 million dollars (11.8 million euros).