SEC Charges Registered Transfer Agent and Its Former Principal in Connection with Unregistered Sale of Undisclosed Blank Check Companies Securities
May 17, 2018
File No. 3-18491
May 17, 2018 – The Securities and Exchange Commission today filed charges against Manhattan Transfer Registrar Company (“Manhattan Transfer”), a New York-based registered transfer agent, and its former principal, John C. Ahearn, for their roles in enabling the unlawful public trading of shares of undisclosed “blank check” companies. Manhattan Transfer settled without admitting or denying the findings in the SEC’s order. Ahearn also agreed to settle the Commission action and has pleaded guilty to criminal charges arising from the same misconduct.
According to the Commission order, undisclosed control persons, who manufactured undisclosed blank check companies, hired Manhattan Transfer and Ahearn to facilitate the sale of the entire float of purportedly unrestricted shares of the blank check companies by reverse merger. Manhattan Transfer and Ahearn removed restrictive legends and effectuated numerous stock transfer requests which led to the unlawful public sale of the securities of two such companies: InTake Communications, Inc. n/k/a Face Up Entertainment Group, Inc. (“InTake”) and Entertainment Art, Inc. n/k/a Biozoom, Inc. (“Entertainment Art”). The Commission found Manhattan Transfer and Ahearn ignored numerous red flags that the shares were part of illegal distributions. For example, according to the SEC’s order, Manhattan Transfer and Ahearn were aware that they were effectuating the transfers of all or nearly all of the public trading float at the direction of the control persons (not the individuals whose names appeared on the certificates) and that legal opinion letters on which they purportedly relied were facially inaccurate or incomplete. Shares in both InTake and Entertainment Art were publicly sold shortly after Manhattan Transfer’s services without an effective registration statement or applicable exemption or safe harbor from the registration requirements.
The SEC’s order finds that Manhattan Transfer and Ahearn willfully violated Sections 5(a) and 5(c) of the Securities Act of 1933 (“Securities Act”). Manhattan Transfer agreed to settle the charges without admitting or denying the findings by paying a $50,000 penalty and disgorgement of $2,132 plus prejudgment interest of $361. The Commission also censured Manhattan Transfer and ordered it to cease and desist from committing or causing any future violations of Sections 5(a) and 5(c) of the Securities Act. The Commission also ordered Manhattan Transfer to engage an independent consultant to review and recommend corrective action with regard to its policies, procedures and supervisory controls intended to prevent such violations. The Commission ordered Ahearn to cease and desist from committing or causing any future violations of Sections 5(a) and 5(c) of the Securities Act, and barred him from association with a transfer agent, broker, dealer, investment adviser, municipal securities dealer, municipal advisor, or nationally recognized statistical ratings organization with the right to reapply after five years.