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[sludgehound]

SEC officials demand new rules for stock transfer agents

http://www.reuters.com/article/2015/06/11/us-sec-transferagent-rules-idUSKBN0OR28O20150611

Thu Jun 11, 2015 12:12pm EDT

WASHINGTON | By Sarah N. Lynch

Two top officials at the U.S. Securities and Exchange Commission called on the regulator on Thursday to update stale rules governing back-office businesses that keep track of stocks as they change hands and of the issuance of shares.

The commission had not significantly revised the rules for the operations known as transfer agents in almost 30 years, SEC Democratic member Luis Aguilar and Republican member Daniel Gallagher said in a joint statement.

"As a result, the Commission’s anachronistic transfer agent rules and the services that the nation’s roughly 450 transfer agents provide today are out of sync," the statement said.

Transfer agents such as those operated by Computershare and Wells Fargo are hired by companies to keep track of shareholder records and changes in ownership.

To date, the industry has been lightly regulated, despite its critical role.

The SEC's enforcement division in recent years has placed a renewed focus on smaller transfer agents because of their so-called gatekeeper role that can help protect the market from microcap stock fraudsters.

Transfer agents are able to remove restrictions on private stock so that they can be freely tradable in public markets.

Those planning on committing stock fraud can lie to or mislead transfer agents so they can get restrictions on the shares illegally removed and sold publicly.

Once the stock is freely tradable, the fraudsters pump up the price with promotional material, including phony claims about the company's prospects, to dupe unsuspecting investors, and then they dump it before the price tanks.

The SEC has been working on updating the rules and it wants to release a high-level document discussing the industry to solicit feedback on what new rules might be appropriate.

But Aguilar and Gallagher said such a step falls short, and enough is known about transfer agents to write new rules now.

Aguilar and Gallagher called for rules that would safeguard investor assets, require transfer agents to have clear written agreements with their corporate clients, impose disaster recovery standards, and be designed to manage conflicts and prevent fraud, among other areas.

(Reporting by Sarah N. Lynch; Editing by Grant McCool)