Securities Regulation Daily Wrap Up, FRAUD AND MANIPULATION—N.D. Ill.: Stock transfer company CEO pleads guilty to misappropriating $1.5 million in customer funds, (Apr 29, 2016)
Organizations Mentioned:Illinois Stock Transfer Co. | New York Stock Exchange, Inc.
The president and CEO of a stock transfer company that served as an agent providing services to customer companies and shareholders has agreed to plead guilty to misappropriating at least $1, 494,000 that belonged to the company’s customers and shareholders and to pay restitution. The court has accepted the plea, and sentencing is scheduled for August 10, 2016 (U.S. v. Pearson, April 26, 2016, Chang, E.).
Plea agreement. According to the plea agreement, the defendant was charged with wire fraud in connection with the activities of Illinois Stock Transfer Company (IST), whose activities included issuing, cancelling, and replacing stock certificates and acting as an intermediary or agent for customer companies and shareholders.
From approximately February 2012 and continuing until about April 2014, the CEO misappropriated customer funds by knowingly making materially false statements to customers and shareholders about the safety and security of these funds in order to cause the customers to entrust the funds to the CEO and his company. But, in fact, the CEO used the money to cover his company’s payroll expenses and payroll taxes.
The CEO falsely advertised that the company was in compliance with SEC rules mandating that transfer agents safeguard customer funds, when actually the CEO concealed from customers and shareholders that he was violating those rules by misappropriating the funds. He also fraudulently provided two management letters to IST’s outside accountant containing material misstatements so the accountant would prepare and submit auditor’s reports to the SEC and NYSE that contained false representations of IST’s internal controls, among other inaccuracies.
In February 2012, in order to pay payroll expenses, the CEO sent by interstate wire approximately $14,000 of misappropriated customer funds from his bank’s processing center in Illinois to an internet site in Georgia and then through the Federal Reserve system as part of the bank’s transfer of funds and payment process, thus violating federal law.
Order. According to the court order, the defendant’s guilty plea on the wire fraud count was accepted, and the case was referred to the probation office for preparation of the presentencing report before sentencing later this year. This agreement covers only the criminal charge.
The case is No. 15 CR. 676.
Attorneys: Jacqueline O. Stern, U. S. Attorney's Office, for the United States. Paul Flynn, Federal Defender Program, for Robert Pearson.
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