SEC Accuses Cortland Banks’ Transfer Agent of Fraud
WASHINGTON -- The U.S. Securities and Exchange Commission Thursday charged the transfer agent for Cortland Bancorp with fraud and imposed an emergency asset freeze on that agent, Illinois-based IST Shareholder Services.
Cortland Bancorp, holding company of Cortland Banks, was unable to conduct its annual meeting last Tuesday because IST did not provide a tabulation of shareholders’ votes for the four items on the agenda (READ STORY).
Senior management of Cortland tried without success to communicate with IST last week and as late as before the meeting Tuesday morning. The president and CEO, James Gasior, informed shareholders of the situation before recessing the meeting and saying it would be rescheduled.
In Chicago, U.S. District Judge Rebecca R. Pallmeyer for the Northern District of Illinois issued an order under seal May 22 that appointed a receiver for Illinois Stock Transfer Co., the name under which IST Shareholder Services is registered with the SEC.
As the SEC noted in its press release Thursday, “Transfer agents are typically used by publicly traded companies or other issuers to keep track of individuals and entities owning their stocks and bonds. Transfer agents can record changes of ownership of securities, maintain issuers’ security holder records, cancel and issue securities certificates and distribute dividends.”
The SEC complaint was unsealed Wednesday in U.S. District Court for Northern Illinois. In it, the SEC alleges that over the past two years IST and Robert G. Pearson misused $1.3 million that belonged to their corporate clients so they could fund their own payroll and business obligations.
The SEC says Pearson “admitted to the scheme during questioning by SEC examiners” and the agency then filed an emergency action with Pallmeyer to freeze IST assets and put the firm under the control of a third-party receiver appointed by the court.
The SEC says that at Pearson’s direction, “IST committed multiple violations of the SEC’s agent transfer rules,” including failure to safeguard funds and securities and not properly report lost and stolen securities. The agency did not identify the issuer of the securities.
Under questioning by its agents, Pearson used clients’ funds “because IST simply had not earned enough income to meet its business expenses,” the SEC said.
Reported by Dennis LaRue in Youngstown, Ohio.
Copyright 2014 The Business Journal, Youngstown, Ohio.
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