UNITED STATES OF AMERICA
In the Matter of
CIBC MELLON TRUST COMPANY,
ORDER INSTITUTING PUBLIC ADMINISTRATIVE PROCEEDINGS PURSUANT TO SECTIONS 15(b) AND 17A(c) OF THE SECURITIES EXCHANGE ACT OF 1934, MAKING FINDINGS AND IMPOSING REMEDIAL SANCTIONS
The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest that public administrative proceedings be, and hereby are, instituted pursuant to Sections 15(b) and 17A(c) of the Securities Exchange Act of 1934 ("Exchange Act") against CIBC Mellon Trust Company ("CIBC Mellon Trust" or the "Respondent").
In anticipation of the institution of these proceedings, Respondent has submitted an Offer of Settlement (the "Offer") which the Commission has determined to accept. Solely for the purpose 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 herein, except as to the Commission's jurisdiction over Respondent and the subject matter of these proceedings, and the findings contained in Section III.5 below, which are admitted, Respondent consents to the entry of this Order Instituting Public Administrative Proceedings Pursuant to Sections 15(b) and 17A(c) of the Securities Exchange Act of 1934, Making Findings and Imposing Remedial Sanctions ("Order"), as set forth below.
On the basis of this Order and Respondent's Offer, the Commission finds that:
1. CIBC Mellon Trust is a Canadian company with its principal office in Toronto, Ontario, in Canada. CIBC Mellon Trust is a joint venture of Canadian Imperial Bank of Commerce, one of Canada's largest banks, and Mellon Financial Corp. CIBC Mellon Trust's principal business is the provision of transfer agent services for public companies.
2. CIBC Mellon Trust acts as a transfer agent, as defined by Section 3(a)(25) of the Exchange Act, and as a broker-dealer, as defined by Section 3(a)(4) and 3(a)(5) of the Exchange Act. From 1998 through 2003, CIBC Mellon Trust acted as a transfer agent for 113 companies that had securities registered under Section 12 of the Exchange Act. During that same period, CIBC Mellon Trust acted as a broker-dealer by engaging in the business of effecting securities transactions for United States resident investors.
3. With respect to each of its clients that, from 1998 through 2003, had securities registered under Section 12 of the Exchange Act, CIBC Mellon Trust alone, or with other transfer agents, provided one or more of the following services with respect to such securities:
4. From 1998 through February 2004, CIBC Mellon Trust was not registered with the Commission, or any other United States agency, as a transfer agent pursuant to Section 17A(c)(1) of the Exchange Act, and from 1998 through the present has not registered with the Commission as a broker-dealer pursuant to Section 15(a) of the Exchange Act.
5. On February 24, 2005, a final judgment was entered by consent against CIBC Mellon Trust in the civil action entitled, Securities and Exchange Commission v. CIBC Mellon Trust Company, 1:05cv0333 (PLF), in the United States District Court for the District of Columbia. The final judgment permanently enjoined CIBC Mellon Trust from future violations of Section 5 of the Securities Act of 1933 (the "Securities Act"), Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, Sections 15(a) and 17A(c)(1) of the Exchange Act, and from aiding and abetting future violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.
6. The Commission's complaint alleged that between 1998 and 1999, CIBC Mellon Trust knowingly and/or recklessly participated in a fraudulent scheme to sell the stock of Pay Pop, Inc. ("Pay Pop") to the public in an unregistered distribution. Specifically, the complaint alleged that the head of CIBC Mellon Trust's Pacific Region accepted a series of bribes in exchange for CIBC Mellon Trust's issuance of hundreds of Pay Pop stock certificates free of any restrictive legend. The legend-free stock certificates, representing over 70 million shares of Pay Pop stock, created the false impression that the Pay Pop stock represented in those certificates was "free trading" and complied with Section 5 of the Securities Act.
7. The complaint further alleged that CIBC Mellon Trust had knowledge of the fraudulent scheme or was reckless in not knowing about the scheme. The head of CIBC Mellon Trust's Pacific Region and another manager of CIBC Mellon Trust's Vancouver office were informed by Pay Pop's securities counsel that CIBC Mellon Trust's actions violated United States securities laws, yet CIBC Mellon Trust ignored that advice. Moreover, due to inadequate internal policies, procedures, training and controls, the complaint alleged, CIBC Mellon Trust ignored several significant red flags that would have alerted CIBC Mellon Trust that its conduct violated the United States securities laws.
8. The complaint also alleged that CIBC Mellon Trust acted as a transfer agent for securities that are registered under Section 12 of the Exchange Act [15 U.S.C. § 78l] or that would be required to be registered except for the exemption from registration provided by subsection (g)(2)(B) or (g)(2)(G) of that section, from 1998 to February 6, 2004, without first registering with the Commission as a transfer agent pursuant to United States securities law.
9. Effective February 6, 2004, CIBC Mellon Trust registered with the Commission as a transfer agent.
10. Finally, the complaint alleged that, from 1998 through the present, CIBC Mellon Trust acted as a broker-dealer by engaging in the business of effecting securities transactions for U.S. resident investors in connection with its administration of dividend reinvestment and stock purchase plans, employee stock purchase plans, employee stock option plans, and odd-lot programs without registering with the Commission as a broker-dealer pursuant to Section 15(a) of the Exchange Act.
In view of the foregoing, the Commission deems it appropriate and in the public interest to impose the sanctions specified in Respondent CIBC Mellon Trust's Offer.
Accordingly, it is hereby ORDERED:
A. Pursuant to Sections 15(b)(4)(C) and 17A(c)(3) of the Exchange Act, CIBC Mellon Trust is hereby censured.
B. CIBC Mellon Trust shall comply with the following undertakings:
(1) within 10 days after the date of the entry of this Order, CIBC Mellon Trust shall send a copy of the Order, Complaint, consent and final judgment in Securities and Exchange Commission v. CIBC Mellon Trust Company, 1:05cv0333 (PLF) to the Depository Trust Company and all of CIBC Mellon Trust's customers for whom it performs transfer agent services for securities registered under Section 12 of the Exchange Act [15 U.S.C. § 78l];
(2) CIBC Mellon Trust shall retain, and in anticipation of the entry of this Order already may have retained, a qualified independent consultant (the "Consultant"), not unacceptable to the staff of the Commission, to conduct a comprehensive review of all aspects of CIBC Mellon Trust's business as a transfer agent for companies with Section 12 registered securities, and as a broker-dealer for U.S. resident investors, including, but not limited to, CIBC Mellon Trust's level and adequacy of staffing, and its policies and procedures as they relate to CIBC Mellon Trust's awareness of, and compliance with, Section 5 of the Securities Act and Section 17A of the Exchange Act and the regulations thereunder, and its compliance with Section 15(a) of the Exchange Act, including the conditions set forth in the Commission's Exemptive Order, exempting CIBC Mellon Trust from registering under Section 15(a) of the Exchange Act;
(3) CIBC Mellon Trust shall require, and in anticipation of this order already may have required, the Consultant to enter into an agreement that provides that, for the period of engagement and for a period of two years from completion of the engagement, the Consultant shall not enter into any employment, consultant, attorney-client, auditing or other professional relationship with CIBC Mellon, or any of its present or former affiliates, directors, officers, employees, or agents acting in their capacity. The agreement will also provide that the Consultant will require that any firm with which he/she is affiliated or of which he/she is a member, and any person engaged to assist the Consultant in performance of his/her duties under this Order shall not, without prior written consent of the Securities and Exchange Commission's Division of Enforcement, enter into any employment, consultant, attorney-client, auditing or other professional relationship with CIBC Mellon, or any of its present or former affiliates, directors, officers, employees, or agents acting in their capacity as such for the period of the engagement and for a period of two years after the engagement.
(4) CIBC Mellon Trust shall direct its agents and employees to cooperate fully with the Consultant's review and answer any questions he or she may have;
(5) CIBC Mellon shall require that, within 120 days of the entry of this Order, the Consultant complete its review and submit a written report documenting its findings and making recommendations (the "Report") to CIBC Mellon Trust's Board of Directors, a copy of which shall be transmitted contemporaneously to the staff of the Commission. In the event that CIBC Mellon Trust is acquired by another company and becomes a wholly-owned subsidiary of the acquiring company before it has fully complied with all of the terms of this Order, CIBC Mellon Trust's obligations under this Order shall remain in effect only as to CIBC Mellon Trust as a wholly-owned subsidiary and only as to CIBC Mellon Trust's Board of Directors as constituted following the acquisition. In the event that CIBC Mellon Trust is acquired by another company and ceases to be a wholly-owned subsidiary of such acquiring company before CIBC Mellon Trust has fully complied with all of the terms of this Order, the acquiring company shall assume CIBC Mellon Trust's obligations under this paragraph;
(6) within 90 days after CIBC Mellon Trust receives the Consultant's report described above, CIBC Mellon Trust shall adopt, implement and maintain any and all policies, procedures and practices recommended by the Consultant and certify to the staff of the Commission, via an affidavit, that it has done so;
(7) beginning 30 days from the date of the entry of this Order forward, CIBC Mellon Trust shall, before it issues or transfers any restricted securities for an issuer with securities registered pursuant to Section 12 of the Exchange Act, whether or not CIBC Mellon Trust is the registered transfer agent for such issuer: (i) obtain an attorney opinion letter authorizing such issuance or transfer; (ii) place appropriate legends on all certificates of restricted stock sent by it to any person in the United States identifying such stock as restricted; (iii) enter and maintain appropriate stop orders relating to such restricted securities; and
(8) two years after CIBC Mellon Trust receives the Consultant's report described above, CIBC Mellon Trust shall retain a qualified independent reviewer (other than the Consultant), not unacceptable to the staff of the Commission, to perform a follow-up review to determine whether CIBC Mellon Trust has adopted and implemented the Consultant's recommendations. The reviewer shall perform its review and produce a written report of its findings within 90 days of his/her retention. CIBC Mellon Trust shall submit the reviewer's written report of the follow-up review to the staff of the Commission at the same time it receives such report.
By the Commission.
Jonathan G. Katz
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