UNITED STATES OF AMERICA
Securities Exchange Act of 1934
Accounting and Auditing Enforcement
The Securities and Exchange Commission ("Commission") deems it appropriate that public administrative proceedings be, and hereby are, instituted pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act") to determine whether Bruce J. Kingdon, Kenneth Goglia, and Harvey Plante ("Respondents") violated Rule 13b2-1 of the Exchange Act.
In anticipation of the institution of these administrative proceedings, Respondents each submitted an Offer of Settlement ("Offer") that the Commission has determined to accept. Solely for the purposes of these proceedings and any other proceedings brought by or on behalf of the Commission or to which the Commission is a party, and without admitting or denying the findings contained herein, except as to jurisdiction over Respondents and over the subject matter of these proceedings, which Respondents admit, Respondents consent to the entry of this Order Instituting Public Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934, Making Findings and Imposing a Cease-and-Desist Order ("Order"). The Commission has determined that it is appropriate to accept the Respondents' Offers and accordingly is issuing this Order.
Based on the foregoing, the Commission finds that:
Bruce J. Kingdon, age 49, was, during the relevant period, the Managing Director in charge of Bankers Trusts' Global Institutional Services unit (described below) and a Partner of Bankers Trust. Kingdon reported directly, at various times, to the President, Vice-Chairman, and Chairman of Bankers Trust Corporation.
Kenneth Goglia, age 53, served in a variety of capacities at Global Institutional Services, including as Managing Director for Finance and Control. Goglia reported directly to Kingdon, and at times indirectly to the Chief Financial Officer of Bankers Trust Corporation.
Harvey Plante, age 40, served in a variety of capacities at Global Institutional Services, including Vice President for Accounting and Control for Global Securities Services, one of its subsidiaries. Plante at times reported directly to Goglia, and at times directly to the Managing Director of Global Securities Services and indirectly to Kingdon.
B. Relevant Bankers Trust Entities
During the relevant time period, Bankers Trust was a wholly-owned subsidiary of Bankers Trust New York Corporation ("BTNY") (now known as Bankers Trust Corporation), a publicly-held bank holding company incorporated in New York, New York. At all relevant times BTNY's stock was registered with the Commission pursuant to Section 12(g) of the Exchange Act and was listed and traded on the New York Stock Exchange.1 On June 4, 1999, Deutsche Bank A.G. completed its acquisition of Bankers Trust Corporation. Bankers Trust Corporation subsequently was merged with a wholly-owned subsidiary of Deutsche Bank, with Bankers Trust Corporation as the surviving corporation.
Global Institutional Services ("GIS"), which was also known as Client Processing Services ("CPS"), is one of the organizational units within Bankers Trust, through which Bankers Trust provides processing, fiduciary and trust services to institutional and individual clients. GIS is subdivided into various business units, including: (i) Global Retirement & Securities Services ("GRSS"), also known as Retirement Services Group ("RSG"), which provides, among other things, custodial, trust administration and asset management services to employee benefit and pension plans of corporations, governments and their agencies; (ii) Global Securities Services ("GSS"), which provides, among other things, custodial, processing and clearing services to purchasers and sellers of securities; and (iii) Corporate Trust & Agency Services ("CTAG"), which provides, among other things, paying agent and fiduciary services to issuers of securities. During the relevant period, fees that GRSS, GSS and CTAG earned from providing these services were a significant component of the overall income of Bankers Trust.
During the normal course of its business, GIS accumulated unclaimed funds. Some unclaimed funds, to the extent they remained unclaimed for an extended period of time and otherwise satisfied the requirements of state escheatment laws, would become the property of one or more of the states. For at least three years ending in 1996, Respondents, while employed in the Client Processing Services unit of Bankers Trust Company, transferred unclaimed funds in the bank's custody to other Bankers Trust accounts. In transferring some unclaimed funds, Respondents directly or indirectly falsified books and records of the Global Institutional Services unit, Bankers Trust, and Bankers Trust's immediate corporate parent, BTNY, thereby violating Exchange Act Rule 13b2-1. The financial statements were not, however, materially misstated as a result of these transfers.
Bank-Wide Expense Reduction Plan
During 1994 and 1995, Bankers Trust's income declined significantly, and in response, Bankers Trust management implemented a bank-wide expense reduction plan. Respondent Kingdon directed his subordinates, including Goglia and Plante, to identify additional revenue sources and to identify expenses that could be reduced. CPS employees, under the direction of Respondents, identified such unclaimed funds as potential revenue sources or expense reduction opportunities, and suggested that those unclaimed funds be used by CPS to increase revenue and to decrease operating expenses.
Transfer of Unclaimed Funds
From January 1994 through September 1995, Respondents participated in the transferring of unclaimed funds from CTAG to various reserve accounts, expense accounts, and income accounts, including the transfer of approximately $700,000 of unclaimed funds in CTAG to an income account. The transfers of these unclaimed funds increased Bankers Trusts' earnings to the extent that unclaimed funds either were transferred to income or expense accounts or were transferred to reserve accounts and later used to write off unrelated operating losses or expenses.
Exchange Act Rule 13b2-1 prohibits any person from, directly or indirectly, falsifying or causing to be falsified, any book, record or account subject to Section 13(b)(2)(A) of the Exchange Act. The Commission finds that Respondents violated Exchange Act Rule 13b2-1 by transferring unclaimed funds into income and reserve accounts and then charging certain of these accounts with operating expenses.
ACCORDINGLY, IT IS HEREBY ORDERED, pursuant to Section 21C of the Exchange Act, that Respondents cease and desist from committing or causing any violations and any future violations of Exchange Act Rule 13b2-1.
By the Commission.
1 On June 4 1999, Bankers Trust Corporation filed a Form 15 providing certification and notice of termination of registration under section 12(g) of the Exchange Act.