In a recent Investor Bulletin, the Securities and Exchange Commission warned investors about lost and stolen securities fraud. According to the bulletin, upon retirement of a security certificate, the transfer agent cancels the certificate. This cancellation usually involves an alteration of the certificate and an accounting entry on the transfer agent’s books. Following the cancellation, Exchange Act rules state that the certificate or record of it be retained for at least six years. Investment fraud lawyers and the SEC say that many corporate bond issues have, in recent years, been cancelled long before their maturities. Unfortunately, there have been many instances in which these canceled certificates have been stolen and reentered the marketplace, resulting in fraud. Victims of this fraud include public investors, broker-dealers, transfer agents, public companies and creditors.
In one case, many canceled bond certificates disappeared in 1992 after they were taken from a transfer agent’s warehouse and delivered to a certificate destruction vendor. These certificates had a face value of around $111 billion. Later, these certificates began to resurface all around the world. Many individuals, brokers and banks were defrauded when the certificates were used as loan collateral or sold for cash.
Securities fraud attorneys say the SEC’s 2011 Lost and Stolen Securities Programs’s report — which received reports and inquiries on missing, lost, stolen or counterfeit certificates — is staggering. During that year, 10,990,507 certificates inquires were made, 512,807 certificates reports were made and “hits” that resulted from certificates inquiries numbered 348,791. The certificates related to these hits, which warned that the certificates in question had been reported as stolen, lost, counterfeit, or missing and ineligible for transfer, were valued at around $8,789,674,628.
Investment fraud lawyers recommend that any investor holding certificates, or considering purchasing certificates, take measures to protect themselves from this type of fraud. Some of the SEC’s recommended actions include:
- If your certificate is lost, stolen or accidentally destroyed, contact the transfer agent immediately for a “stop transfer.” This will prevent the transfer of ownership of the security from your name to someone else’s.
- If your certificate is expected in the mail but doesn’t arrive, contact whomever arranged the transaction immediately. Usually, this is your brokerage firm.
- A copy should be made of both sides of the certificate, which must be kept separate from the actual certificate. This will help a transfer agent establish when and to whom the certificate was transferred, should a problem arise.
If you believe you have been the victim of lost and stolen securities fraud, find out more about your legal rights and options by contacting a securities fraud attorney at The Law Office of Christopher J. Gray at (866) 966-9598 for a no-cost, confidential consultation.