UNITED STATES OF AMERICA
In the Matter of
United Stock Transfer, Inc. and
ORDER MAKING FINDINGS AND
In connection with a public administrative proceeding instituted against them on November 20, 2000, pursuant to Sections 17A(c)(3), 17A(c)(4) and 21C of the Securities Exchange Act of 1934 ("Exchange Act"), United Stock Transfer, Inc. and John J. Donnelly (together the "Respondents") have submitted an Offer of Settlement ("Offer") to the Securities and Exchange Commission ("Commission"), which the Commission has determined to accept. Solely for the purpose of this proceeding and any other proceeding brought by or on behalf of the Commission or in which the Commission is a party, and without admitting or denying the findings contained herein, except as to jurisdiction, which they admit, Respondents consent to the entry of the findings and remedial sanctions as set forth below.
On the basis of the Order Instituting Proceedings and the Offer submitted by Respondents, the Commission makes the following findings:
A. United Stock Transfer, Inc., a Colorado corporation with its principal place of business in Englewood, Colorado, has been registered with the Commission as a transfer agent since May 1, 1987, pursuant to Section 17A(c)(2) of the Exchange Act. On January 7, 1999, the Commission censured United and imposed a cease-and-desist order in connection with its deficiencies in filing Form TA-Y2K as required by Rule 17Ad-18;
B. John J. Donnelly, a resident of Highlands Ranch, Colorado, has served as the president of United since November 1991. Since that date, Donnelly has also been the principal person in charge of United's day-to-day operations and compliance with various rules applicable to transfer agents under the Exchange Act;
C. During the period from November 1991 through May 2000, the staff of the Commission performed six routine and three cause examinations of United's books and records to review whether United was in compliance with the Exchange Act and the Commission's rules and regulations applicable to transfer agents;
D. During five of these routine examinations, the staff of the Commission noted certain areas of noncompliance by United with one or more rule and regulation. After each examination, the staff forwarded to United a deficiency letter that described the areas of non-compliance with the Exchange Act and certain rules and regulations by United;
E. During the relevant time period, the staff noted numerous repeat deficiencies in that United failed:
F. Section 17(a)(3) of the Exchange Act states: "Every registered transfer agent shall also make and keep for prescribed periods such records, furnish such copies thereof, and make such reports as the appropriate regulatory agency for such transfer agent, by rule, prescribes as necessary or appropriate in furtherance of the purposes of section 17A of this title." Section 17A(d)(1) of the Exchange Act states: "No registered clearing agency or registered transfer agent shall, directly or indirectly, engage in any activity as clearing agency or transfer agent in contravention of such rules and regulations (A) as the Commission may prescribe as necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of this title, or (B) as the appropriate regulatory agency for such clearing agency or transfer agent may prescribe as necessary or appropriate for the safeguarding of securities and funds." By virtue of the conduct described above, United willfully violated Sections 17(a)(3) and 17A(d)(1) of the Exchange Act and Rules 17Ac2-1; 17Ac2-2; 17Ad-2; 17Ad-5; 17Ad-6; 17Ad-7; 17Ad-10; 17Ad-13; 17Ad-15; 17Ad-16; 17Ad-17; 17f-1 and 17f-2 thereunder, and Donnelly willfully aided and abetted and caused United's violations.
In view of the foregoing, the Commission deems it appropriate and in the public interest to accept the Offer submitted by Respondents and to impose the sanctions specified therein.
Accordingly, IT IS ORDERED that:
A. Pursuant to Sections 17A(c)(3) and 17A(c)(4) of the Exchange Act, Respondents be and hereby are censured;
B. Pursuant to Section 21C of the Exchange Act, Respondents cease and desist from committing or causing any violation or future violation of Sections 17(a)(3) and 17A(d)(1) and Rules 17Ac2-1; 17Ac2-2; 17Ad-2; 17Ad-5; 17Ad-6; 17Ad-7; 17Ad-10; 17Ad-13; 17Ad-15; 17Ad-16; 17Ad-17; 17f-1 and 17f-2 thereunder.
C. Respondents shall comply with their undertakings to:
1. Prepare and implement a written plan within 60 days of the date of this Order ("the Planning Period"), and thereafter maintain procedures, to assure that:
(a) Supplemental reports on Forms TA-1 are current, accurate and timely filed with the Commission, as required by Rule 17Ac2-1;
(b) Annual reports on Forms TA-2 are current, accurate and timely filed with the Commission, as required by Rule 17Ac2-2;
(c) United turnaround in a timely manner, items received for processing and transfer and notify the Commission of its failure to comply with the turnaround rules as required by Rule 17Ad-2;
(d) United provides timely responses to written inquiries and requests regarding, among other things, items presented for transfer, as required by Rule 17Ad-5;
(e) United maintains proper records relating to letters of appointment, routine items, non-routine items, turnaround times, cancellation of shares and signatures or stock powers on certificates presented for transfer, as required by Rule 17Ad-6;
(f) United follows record retention requirements, as required by Rule 17Ad-7;
(g) Documentation setting forth the total number of shares authorized and the total number of shares issued and outstanding for each issuer for which United acts as transfer agent are maintained and posted to the master securityholder file and control books, in accordance Rule 17Ad-10;
(h) Annual reports by an independent accountant examining United's internal accounting controls and related procedures for the transfer of record ownership and the safeguarding of related securities and funds will be prepared and timely filed with the Commission, and that any recommendations made therein are adopted, in accordance with Rule 17Ad-13;
(i) United establishes written standards and procedures for the acceptance of signature guarantees, as required by Rule 17Ad-15;
(j) United notifies the appropriate qualified registered securities depository of United's assumption or termination of transfer agent services in a timely manner, as required by Rule 17Ad-16;
(k) United establishes and follows procedures to search for lost securityholders, as required by Rule 17Ad-17;
(l) United registers with the Securities Information Center (the "SIC"), properly reports lost or stolen securities to the SIC, and properly preserves confirmations from the SIC, as required by Rule 17f-1; and
(m) Non-exempt employees of United will be fingerprinted and that the fingerprints are submitted to the Attorney General of the United States for identification and processing, and the processed fingerprint cards are maintained in an easily accessible place in United's office, in accordance with Rule 17f-2.
2. Engage, at their cost, an independent certified public accountant who is acceptable to the staff ("Accountant") within 30 days of the date of this Order to perform four semi-annual reviews of United's practices, policies and procedures which shall include:
(a) Examining the books and records of United every six months (the "Examination Period"), commencing not more than 60 days after the engagement of the Accountant, to determine whether United has prepared and implemented the written plan as prescribed herein and complied with all applicable rules and regulations of the Exchange Act;
(b) Reviewing United's procedures to identify any material inadequacies with such review to be completed during the Examination Period;
(c) Recommending improvements to United's practices, policies and procedures immediately after each Examination Period; and
(d) Preparing a report setting forth the findings of the Accountant's examination, the deficiencies, if any, identified during the examination, and the Accountant's recommendations for improvement to United's practices, policies and procedures. A copy of the report shall be delivered to Respondents and Donald Hoerl, Associate Regional Director of the Central Regional Office of the Commission within 15 days after the conclusion of the examination;
3. Implement the recommendations of the Accountant within 60 days of the delivery of the report described in paragraph III.C.2(d) above (the "Remediation Period");
4. For each failure by Respondents to comply with any of the undertakings contained in the Order required to be performed during the Planning Period, any Examination Period or Remediation Period as prescribed herein, be subject to one additional Accountant's review;
5. If the final semi-annual Accountant's report fails to state that the practices, policies and procedures of United have been designed and implemented in a manner reasonably necessary to ensure compliance with all applicable rules and regulations of the Exchange Act, the provisions of paragraph (4) continue until one such report satisfies this standard; and
6. Not assert the absence of Commission comment on any Accountant's report described herein as a defense in any future action by the Commission; and
D. Pursuant to Section 21B of the Exchange Act, Respondents shall jointly and severally pay a civil money penalty in the amount of $10,000 to the United States Treasury payable as follows: (1) $5,000 shall be due and payable within sixty (60) days of the entry of the Order; and (2) $500 per month for the ensuing ten (10) months with any unpaid balance of the civil money penalty being due and payable in full on or before twelve (12) months from the date of the entry of the Order. Such payment shall be: (1) made by United States postal money order, certified check, bank cashier's check or bank money order; (2) made payable to the Securities and Exchange Commission; (3) hand-delivered or mailed to the Office of the Comptroller, U.S. Securities and Exchange Commission, Operations Center, 6432 General Green Way, Stop 0-3, Alexandria VA 22312; and (4) submitted under cover letter which identifies United and Donnelly as the Respondents in these proceedings, the file number of these proceedings, a copy of which cover letter and money order or check shall be sent to Donald M. Hoerl, Associate Regional Director, Securities and Exchange Commission, Denver Regional Office, 1801 California St., Suite 4800, Denver, CO 80202.
By the Commission.
Jonathan G. Katz
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