The SEC announced that it is filing fraud charges against IST Shareholder Services, a transfer agent based in Illinois, and its owner Robert G. Pearson. The regulator also obtained an emergency asset freeze in this matter. IST Shareholder Services is registered with the SEC under the name Illinois Stock Transfer Company.
The transfer agent and Pearson are accused of a misappropriation scam that bilked clients of over $1.3 million. The fraud was discovered when the Commission examined the firm. Pearson eventually admitted to the scam during questioning by SEC examiners.
Stock issuers usually use transfer agents to keep track of the entities and individuals that own the bonds and stocks. The agents document changes to securities ownership, keep up the security holder records for issuers, give out dividends and issue/cancel securities certificates. Now, the SEC is claiming that Pearson and his company misused money that belonged to clients and their shareholders to pay for their own business obligations and fund payroll.
The SEC says that Pearson misappropriated the funds from an IST bank account that held client funds. These clients used the transfer agent as an agent to pay shareholders their cash disbursements.
SEC examiners noticed a number of transactions that seemed to involve IST’s payroll instead of transfer agent-related activities. They questioned Pearson, who said at first that the local suburban bank holding IST’s general operating account could not deal with making payroll direct deposits. He said ‘probably not,’ when he was questioned about whether IST had sufficient monies in the customer account to cover payroll costs without taking customer funds. During later questioning, it became clear that Pearson used the money to cover payroll and related tax expenses.
Apparently, the transfer agent had not made enough to pay for its business costs. Pearson claimed that he intended to pay back the money that he took but did not have the cash to pay everything back enough.
The regulator says IST violated the SEC’s transfer agent regulations in multiple ways. It purportedly did not protect the securities and funds and failed to properly report securities that were lost or stolen. It also evaluates internal accounting controls or provides notice of termination or assumption of transfer agent services.
At The SSEK Partners Group, our securities lawyers represent high net worth individuals and institutional investors, including corporations, banks, partnerships, financial firms, retirement plans, charitable organizations, large trusts, private foundations, municipalities, school districts and others. We understand that financial stakes are high and often losses can affect not just the client but many others involved.
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SEC Obtains Asset Freeze to Halt Fraud at Illinois-Based Transfer Agent, SEC, May 28, 2014
Read the Complaint (PDF)
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