U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 19664 / April 24, 2006
Securities and Exchange Commission v. The Bank of New York, Civil Action No. 06 CV 3121 (LS)(S.D.N.Y.)
SEC Files Settled Enforcement Actions Against The Bank Of New York For Transfer Agent Rule Violations
The Securities and Exchange Commission ("Commission") announced that on April 24, 2006, it filed a civil action in the United States District Court for the Southern District of New York against The Bank of New York ("BNY"), a bank and registered transfer agent headquartered in New York. Without admitting or denying the Commission's allegations, BNY has consented to the entry of a final judgment imposing a $250,000 civil penalty.
The Commission's Complaint alleges that BNY violated Section 17A(d) of the Securities Exchange Act of 1934 and Rule 17Ad-17 thereunder when it failed as a transfer agent to exercise reasonable care to ascertain the correct addresses of lost securityholders. Transfer agents are required to use reasonable care in searching for securityholders who are deemed "lost" after correspondence sent to them is returned as undeliverable. Rule 17Ad-17 requires a search using at least two electronic databases at specified intervals.
The Complaint alleges that, from January 1998 to September 2004, BNY failed to classify certain securityholders as lost despite the return of undeliverable correspondence. As a result, BNY omitted approximately 14,159 securityholders from the required searches, and ultimately escheated approximately $11.5 million in assets belonging to those securityholders to various states, as unclaimed property. In addition, coding errors affecting BNY's system used for compiling lists of lost securityholders caused BNY to omit other eligible securityholders from searches. These securityholders were forced to pay third parties $743,112 in unnecessary fees to recover their lost assets.
In a separate cease-and-desist proceeding, BNY, without admitting or denying the Commission's findings, consented to the entry of an Order requiring BNY to cease and desist from violations of Section 17A(d) of the Exchange Act and Rule 17Ad-17 thereunder. In the Order, BNY has also agreed to repay securityholders the fees paid to third parties, and will pay those securityholders whose assets were escheated the greater of the value of the asset at the time of escheatment or the asset's current value.