On March 22, the SEC announced a settlement with a financial services firm to resolve allegations that certain associated persons on its securities lending desk allegedly “improperly borrowed” pre-released American Depositary Receipts (ADRs)—“U.S. securities that represent shares in foreign companies”—from non-firm brokers who did not own the foreign shares required to support those ADRs. The SEC noted in its press release that ADRs can be pre-released without the deposit of foreign shares only if (i) the brokers receiving the ADRs have an agreement with a depositary bank; and (ii) “the broker or its customer owns the number of foreign shares that corresponds to the number of shares the ADR represents.” The SEC alleged that the firm’s practices violated the Securities Act of 1933 and led to “inappropriate short selling and dividend arbitrage that should not have been occurring.” Moreover, the SEC claimed that the firm’s supervisory policies and procedures “failed to prevent and detect” the securities laws violations. The firm neither admitted nor denied the SEC’s allegations, but agreed to pay more than $4.4 million in disgorgement, roughly $725,000 in prejudgment interest, and a civil money penalty of approximately $2.9 million. The SEC’s order acknowledges the bank’s cooperation in the investigation.