The role of a transfer agent is a unique – and powerful – position in the securities industry. Transfer agents are used by publically traded companies and other issuers “to keep track of individuals and entities owning stocks and bonds [of these companies]” by “recording changes of ownership of securities, maintaining issuers’ security holder records, cancelling and issuing securities certificates, and distributing dividends.” Their place as pseudo-gatekeepers of their client’s securities books and records, and their ability to be “entrusted with millions of [client] dollars,” is a position that the Illinois Stock Transfer Company (“IST”) abused, according to a recent Securities and Exchange Commission (“SEC”) press release.
The SEC alleges it uncovered a misappropriation scheme involving IST and their client’s funds that exceeded $1.3 million over a period of 2 years. According to the SEC, funds being held in an IST bank account intended for client cash disbursements to shareholders were instead used for IST’s “own payroll and business obligations.” “Unusual transactions” on IST’s payroll, rather than the transfer agent’s accounts, prompted the further investigation of the firm by the SEC.
Interestingly, the CEO of IST, Robert G. Pearson, admitted to this scheme “during questioning by SEC examiners.” This discovery prompted the Commission to freeze assets, press fraud charges, and place control of IST “under a third party receiver appointed by the court.” While many cases of fraud are uncovered during the SEC examination process, the admission of such wrongdoing by its highest executive underlies not only the place of these individuals within such schemes, but also the importance of the examination process in revealing inaccuracies in the books and records of transfer agents in the financial industry.
For further information on this and other related subjects, please contact us at firstname.lastname@example.org or (619) 298-2880.