UNITED STATES OF AMERICA
In the Matter of
Continental Stock Transfer and Trust Company, and Michael Nelson
ORDER INSTITUTING PUBLIC ADMINISTRATIVE PROCEEDINGS PURSUANT TO SECTIONS 17A(c) AND 21C OF THE SECURITIES EXCHANGE ACT OF 1934, MAKING FINDINGS AND IMPOSING A REMEDIAL SANCTION AND CEASE-AND-DESIST ORDER
The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest that public administrative proceedings be instituted pursuant to Sections 17A(c) and 21C of the Securities Exchange Act of 1934 ("Exchange Act") against Continental Stock Transfer and Trust Company ("Continental"), a transfer agent registered with the Commission, and Michael Nelson ("Nelson").
In anticipation of the institution of these administrative proceedings, Continental and Nelson have submitted Offers of Settlement ("Offers"), which the Commission has determined to accept. Solely for the purpose of these proceedings, and any other proceeding brought by or on behalf of the Commission, or in which the Commission is a party, Continental and Nelson, without admitting or denying the findings contained in this Order Instituting Public Administrative Proceedings Pursuant to Sections 17A(c) and 21C of the Securities Exchange Act of 1934, Making Findings and Imposing a Remedial Sanction and Cease-and-Desist Order ("Order"), except with respect to the Commission's jurisdiction over them and over the subject matter of these proceedings, which they admit, each consent to the issuance of this Order and to the entry of the findings and the imposition of the sanctions set forth below.
Accordingly, IT IS ORDERED that public administrative proceedings pursuant to Sections 17A(c) and 21C of the Exchange Act be, and hereby are, instituted.
On the basis of this Order and the Offers, the Commission finds that:
A. Continental is, and was during the period described below, a transfer agent registered with the Commission pursuant to Section 17A(c)(2) of the Exchange Act and chartered under New York State banking laws by the New York State Banking Department ("NYSBD"). Continental is a limited-purpose trust company wholly-owned by Markan Incorporated ("Markan"), a company that has seven other subsidiaries. Continental's principal executive offices are located in New York City.
B. Nelson, 57, resides in Manhattan, New York and was President and Treasurer of Continental during the relevant period until his resignation on October 13, 2000. He owns 8.25 shares, or a 25% ownership interest, of Markan.
C. From January 1995 through March 2000, Continental, at Nelson's direction, improperly transferred a total of $1,118,582 from dormant bank accounts held on behalf of issuers ("agency funds") to the operating bank accounts of Continental and its affiliate company, Continental Stock Transfer Corporation ("CSTC").
D. On Nelson's instructions and without the issuers' knowledge, Continental closed several hundred dormant agency accounts and transferred the balances therein to Continental's and CSTC's operating bank accounts. Continental then concealed the diversion of these funds from regulators by recording the transfers of agency funds to Continental and CSTC as either miscellaneous income or reductions to unrelated accounts receivables, or as entries to a balance sheet suspense account.
E. Prior to 1997, Continental also periodically commingled agency funds with funds belonging to Continental and its affiliates in short-term interest bearing "sweep" accounts held by Continental. In further breach of its duty to maintain reasonable safeguards against misuse of agency funds, Continental failed to adequately document the transfers of agency funds to these accounts. Continental voluntarily ceased using the "sweep" accounts in 1996.
F. In May 2000, while the NYSBD was conducting its annual examination of Continental, which included a review of escheatment practices and procedures, Nelson admitted to Continental's Chairman that he had improperly recorded and transferred unclaimed agency funds. Following Nelson's disclosure, Continental informed the NYSBD and the SEC of the improper transfers and retained an outside accounting firm to investigate the matter in greater detail. Since that date, Continental has cooperated with the NYSBD and the SEC, and has escheated and/or restored the agency funds it improperly transferred in the manner described in subparagraphs IV.C. and IV.D. above.
G. Pursuant to an order issued on October 20, 2000 by the Superintendent of Banks of the State of New York ("New York Superintendent of Banks"), Continental, among other things, agreed to permanent removal of Nelson from his positions at Continental, escheated or returned the transferred agency funds to their owners, hired an outside accounting firm to review the company's operations, and instituted new internal controls and policies. On November 8, 2001, the New York Superintendent of Banks issued, with Continental's consent, a further order requiring Continental to pay a $1 million penalty and to cease and desist from violating relevant provisions of the New York State banking law. That same day, Nelson pleaded guilty in Manhattan Supreme Court to a felony indictment alleging falsification of banking records and agreed to pay a $1 million criminal fine to the State of New York. This Offer of Settlement and Order arise from the same events as the NYSBD order and Nelson's guilty plea.
H. By reason of the foregoing, Continental violated Section 17A(d)(1) of the Exchange Act and Rule 17Ad-12 thereunder.
I. By reason of the foregoing, Nelson caused, and willfully aided and abetted, Continental's violations of Section 17A(d)(1) of the Exchange Act and Rule 17Ad-12 thereunder.
In view of the foregoing, the Commission deems it appropriate and in the public interest to accept the Offers and impose the sanctions set forth below.
Accordingly, IT IS HEREBY ORDERED that:
A. Continental and Nelson, pursuant to Section 21C of the Exchange Act, cease and desist from committing or causing any violation and any future violation of Section 17A(d)(1) of the Exchange Act and Rule 17Ad-12 thereunder; and
B. Nelson be, and hereby is, pursuant to Section 17A(c)(4)(C) of the Exchange Act, barred from association with any transfer agent.
By the Commission.
Jonathan G. Katz
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