Fraud in the microcap market often involves unregistered offerings, pump-and-dump schemes, and other forms of stock manipulation. Because securities distributed as part of a fraud involving unregistered offerings often pass through transfer agents to remove certain restrictions (or legends) on the stock certificates that otherwise would restrict their transfer, transfer agents could facilitate such fraud. Transfer agents are, thus, well-positioned to prevent violations of the federal securities laws by identifying and preventing the possible distribution of unregistered securities.We’ve known for a while that more has been needed to be done.For example, it would seem to be a conflict where the same persons own and control a transfer agent and a brokerage firm in the same office, and are also officers and directors in a public microcap company that is loaned money by the transfer agent in exchange for common stock. Generally speaking, conflicts of interest are inherently problematic because, left unchecked, they can unduly affect people’s good judgment and lead them to place their personal interests ahead of their clients’ and customers’ interests. The Commission should work to ensure that appropriate rules are in place to eliminate or mitigate potential conflicts of interest in the transfer agent area, wherever, and however, they may arise.Yet there are no conflict of interest prohibitions for transfer agents. Ultimately, any conflict of interest rules should ensure that transfer agents perform their services impartially and objectively, without any improper motivation that could corrupt their ability to exercise unbiased professional judgment. Should the requirements be higher for custody-carrying paying agents?#Blessed reminds me of my recent discovery of Peace Pilgrim born in 1908 1st woman on record to trek the Appalachian trail & witnessed history on up to her untimely passing in an auto accident. Recently, an error was detected in the computer program that was used to construct the "social security wealth" variable. r0270) Issued in November 1980 NBER Program(s): Public Economics In a 1974 paper in the Journal of Political Economy I discussed the theoretical ambiguity of the effect of social security on private saving and presented statistical evidence that social security does on balance depress saving.
When the transfer agent rules were adopted, fewer people owned stock, and those who did typically held their physical stock certificates themselves. Clearly, more American families today are invested in the capital markets and, thus, more people than ever depend on transfer agents to discharge their responsibilities promptly, accurately, and efficiently.
Indeed, the distribution of unregistered securities is often associated with microcap pump-and-dump schemes and other penny stock fraud. The investing public needs capable, honest, and reliable transfer agents to help the capital markets function properly and effectively.
2) The transfer agent rules were originally adopted in 1977, with additional rules in the early 1980s, and have been amended rarely since. Technological advances and changes to business practices and market structure have created a significant gap between the transfer agent rules and the actual activities that transfer agents undertake in the current business environment.
Yet the Commission is about to adopt similar such rules for exchanges and some ATS platforms. The increased use of technology in the capital markets and by transfer agents has been transformative.
Unfortunately, like other members of the industry, transfer agents are not immune from the omnipresent threat of a cyber-attack.