U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 16633 / July 21, 2000
SECURITIES AND EXCHANGE COMMISSION v. UNITED CUSTODIAL CORPORATION, Civil Action No. 00-07907 JSL (Mcx) (C.D. Cal.)
On July 21, 2000, the Securities and Exchange Commission filed a lawsuit in federal court in Los Angeles alleging that a San Clemente, California-based business, United Custodial Corporation, was operating as an unregistered brokerage firm. United Custodial has agreed to settle this matter by consenting to the entry of a permanent injunction without admitting or denying allegations in the Commission's complaint.
In its complaint, the Commission alleges that from approximately 1993 through April 2000, United Custodial's affiliate company, San Clemente Securities, sold interests in bank-issued FDIC insured certificates of deposit, or CDs, to the public. The CDs were issued in the name of, and held by, United Custodial, as custodian on behalf of San Clemente's customers. The Commission's complaint further alleges that as a part of this custodial relationship, United Custodial received, held and disbursed investor funds and received, held and delivered investor securities, thereby operating as a full-clearing broker-dealer. United Custodial is not registered with the Commission as a broker-dealer, as required by Section 15(a) of the Securities Exchange Act of 1934.
As part of its lawsuit, the Commission charged United Custodial with violations of the broker-dealer registration and capital reserve provisions of Sections 15(a) and 15(c)(3) of the Securities Exchange Act of 1934 and Rule 15c3-3 thereunder.
As part of its settlement with the Commission, United Custodial has agreed to maintain the engagement of a CPA firm to provide oversight of all disbursements from UCC. United Custodial has also agreed to transfer the CD assets of San Clemente customers to an appropriate custodian within 180 days. If a new custodian cannot be found within that period, United Custodial has consented to the appointment of a receiver for those assets.
The Commission acknowledges the valuable assistance provided by the National Association of Securities Dealers in bringing this case.