On June 23, 2004, the Securities and Exchange Commission (Commission) filed a complaint seeking a $125,000 penalty against Wilmington Trust Company (Wilmington Trust) in the United States District Court for the District of Delaware alleging that Wilmington Trust violated certain key recordkeeping and reporting requirements while acting as a registered bank transfer agent. Wilmington Trust consented to the imposition of the penalty without admitting or denying the allegations in the complaint. Wilmington Trust Company, a Delaware corporation, is a wholly-owned subsidiary of the Wilmington Trust Corporation.
According to the complaint, between September 2000 and July 2003, Wilmington Trust failed to maintain current and accurate master securityholder files for the debt securities for which it acted as transfer agent. In particular, the complaint alleges that Wilmington Trust did not verify that the actual payments it processed were accurately recorded in the master securityholder files. By January 2003, almost 2,000 recordkeeping items on Wilmington Trust's master securityholder files, totaling in excess of $5.8 billion, had not been reconciled against the actual payments processed. Wilmington Trust also did not reconcile the principal balances in the master securityholder files with those in the control book. When Wilmington Trust ultimately reconciled its records, it found 17 active debt issues for which the principal balances in the master securityholder files differed from those in the control book by approximately $185 million. The complaint alleges that although these record differences did not represent any actual cash payment errors or financial loss to any issuers or shareholders or to Wilmington Trust, they did represent recordkeeping errors that, in many instances, had existed for one or more years.
The complaint further alleges that Wilmington Trust failed to timely report these aged record differences to the issuers or the Federal Deposit Insurance Corporation (FDIC) and failed to disclose the aged record differences in its Forms TA-2. In addition, the complaint alleges that Wilmington Trust failed to either provide reports to its Board of Directors or the Audit Committee of its Board of Directors or file an independent accountant's report with the FDIC and Commission concerning the adequacy of the internal accounting controls for its transfer agent operations.
The complaint alleges that as a result of the conduct described above Wilmington Trust violated Section 17A(d)(1) of the Securities Exchange Act of 1934 and Rules 17Ad-10(a), 17Ad-10(b), 17Ad-11(b), 17Ad-11(c), 17Ac2-2 and 17Ad-13 thereunder. The Commission also simultaneously entered a cease-and-desist order prohibiting Wilmington Trust from committing or causing any violations and any future violations of these recordkeeping and reporting requirements in a related action before the Commission. Wilmington Trust consented to the entry of the cease-and-desist order without admitting or denying the findings of the order.
The Commission thanks the FDIC for its assistance in this matter.
