by Howard Haykin

Anthony Portelli, former managing director and head of operations for broker-dealer ITG, agreed to pay a $100K fine and to serve an 18-month suspension from acting in a supervisory role to settle SEC charges pertaining to improper handling of American Depositary Receipts (ADRs) by ITG’s securities lending desk.

In January 2017, ITG agreed to pay more than $24 million to settle the SEC’s related case against the firm.  ITG was charged with having violated federal securities laws when it prompted the issuance of American Depository Receipts (ADRs) without possessing the underlying foreign shares. Many of the ADRs obtained by ITG through pre-release transactions allegedly were ultimately used to engage in short selling and dividend arbitrage even though they may not have been backed by foreign shares.  ITG’s improper handling of ADRs lasted from 2011 to 2014. [Click on “ITG Paying $24 Million for Improper Handling of ADRs – SEC.”]

PORTELLI’S BACKGROUND.    Anthony Portelli began in the securities business in December 1992 and, in his 23 years, worked for 9 firms. According to BrokerCheck, since 2000 Mr. Portelli has worked for the following firms (most recent first):  (i) Alternet Securities; (ii) ITG;  (iii) NYFIX Securities; (iv) NYFIX Millennium;  and, (v) NYFIX Transaction Services. He currently is not associated with any firm. Prior to this month’s SEC action, Mr. Portelli had no disciplinary disclosures during his 23 years in the business.

SEC FINDINGS AGAINST PORTELLI.    The SEC's order finds supervisory failures by Anthony Portelli, who supervised ITG’s securities lending operations and was responsible for the firm’s compliance with “pre-release agreements” for ADR transactions. 

ADRs are U.S. securities that represent foreign shares of a foreign company.  Before obtaining a “pre-released ADR” to lend to a customer, brokers like ITG must own, or determine that a customer owns, the number of foreign shares that corresponds to the number of shares the ADR represents. 

Under Portelli’s watch, personnel on ITG’s securities lending desk failed to take reasonable steps to determine whether the proper amounts of foreign shares were owned and held by ITG’s customers.  This failure opened up the possibility that the ADRs could be used improperly for short selling or dividend arbitrage.

Sanjay Wadhwa, Senior Associate Director of the SEC’s New York Regional Office, further noted that Portelli “routinely signed off on transactions involving ADRs that were not backed by actual shares and should never have been issued.”

The SEC investigation continues.