CIBC Mellon Trust Agrees to pay penalty of
and disgorgment and prejudgment interest of over $1 Million
U.S. Securities and Exchange Commission
February 16, 2005
The Securities and Exchange Commission today filed settled enforcement proceedings against CIBC Mellon Trust Company, ("CIBC Mellon") headquartered in Toronto, Canada. In its complaint, the Commission charged that, between July 1998 and September 1999, CIBC Mellon participated in a fraudulent scheme to promote, distribute and sell the stock of Pay Pop, Inc. ("Pay Pop"), a now-defunct British Columbia-based telecommunications company. The complaint alleges that, during the period CIBC Mellon acted as Pay Pop's transfer agent, one of its senior managers was bribed by two of Pay Pop's officers and directors to assist them in obtaining a ready supply of Pay Pop stock for these officers and directors to illegally distribute to investors. By its failure to have sufficient policies, procedures and internal controls in place, CIBC Mellon failed to detect the bribes, and the illegal conduct, thereby allowing the scheme to succeed. The complaint further alleges that from 1998 through 2003, CIBC Mellon acted as a transfer agent for at least 113 companies whose securities were registered with the Commission and, from 1998 through the present, CIBC Mellon acted as a broker-dealer for at least 45 of those companies yet never registered with the Commission as a transfer agent, or as a broker-dealer as it was required to do. Subsequently, on February, 6, 2004, CIBC Mellon registered with the Commission as a transfer agent. CIBC Mellon Trust further requested that the Commission issue an order exempting it from the broker-dealer registration requirement of Section 15(a). The Commission has approved this request and will issue an order granting the exemption upon entry of the final judgment in these proceedings.
Without admitting or denying the Commission's allegations, CIBC Mellon consented to the entry of a final judgment enjoining it from future violations of the antifraud, transfer agent registration, broker-dealer registration and securities registration provisions of the federal securities laws (Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder, Section 17A of the Exchange Act, Section 15(a) of the Exchange Act and Section 5 of the Securities Act of 1933). CIBC Mellon has agreed to pay a $5 million civil penalty, $889,773 in disgorgement, and $140,270 in prejudgment interest. The civil penalty was assessed, in part, for CIBC Mellon's failure to cooperate in the investigation of this matter.
In addition, based upon the court's anticipated entry of the final judgment, CIBC Mellon has agreed to the issuance of a settled administrative order finding that it violated Sections 15(a) and 17A of the Exchange Act for failing to register as a broker-dealer or as a transfer agent. Without admitting or denying the Commission's findings, the Commission Order will require CIBC Mellon to cease-and-desist from future violations of the broker-dealer and transfer agent provisions of the Exchange Act (Sections 15(a) and 17A). In addition, CIBC Mellon will agree to maintain its registration as a transfer agent for as long as it continues to act as a transfer agent for any security registered with the Commission under Section 12 of the Exchange Act and, in anticipation of the entry of the Order requiring it to do so, CIBC Mellon has retained a qualified independent consultant to conduct a comprehensive review of all aspects of CIBC Mellon's business as a transfer agent and as a broker-dealer.
The Commission acknowledges the assistance of the Organized Crime Agency of British Columbia, the British Columbia Securities Commission, the Federal Bureau of Investigation, the Ontario Securities Commission, NASD Regulation, Inc. and the District Attorney for San Diego County, California in the investigation of this matter.
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