U.S. securities regulators have issued an alert highlighting the risk of lost and stolen securities certificates, which can be used to defraud investors.
The U.S. Securities and Exchange Commission’s (SEC) Office of Investor Education and Advocacy issued an investor bulletin Monday that aims to help educate investors about lost and stolen securities, and alert them to existence of the commission’s database for securities certificates that have been reported lost, stolen, missing, or counterfeit, known as, its Lost and Stolen Securities Program (LSSP).
The advisory notes that in recent years many corporate bond issues have been called for redemption and cancelled decades before their maturities; which, along with an active stock market, “have generated vast amounts of cancelled securities certificates that must be processed, stored, and safeguarded.”
Cancelled certificates must be retained for at least six years. And, it says there have been episodes of cancelled certificates being stolen, and later turning up in securities frauds. “In many cases, the stolen certificates have reentered the marketplace either through sales or as collateral for loans, resulting in fraud on public investors, public companies, creditors, broker-dealers, and transfer agents,” it says.
The SEC’s database of lost, stolen, missing, and counterfeit certificates covers securities with a value of approximately US$820 billion, as of Dec. 31, 2013, it says. During 2013, reports were made on 525,123 certificates (an average of 2,075 certificates per business day), it says; inquiries were made on 7.2 million certificates (an average of 28,448 per day); and, this resulted in matches on 87,661 certificates, which essentially warned that the certificates had been reported as lost, stolen, missing, or counterfeit, and were not eligible for transfer. The value of the certificates associated with these matches were approximately US$7.6 billion.
The alert says that investors should report any lost or missing certificates to the transfer agent and request a ‘stop transfer’. The broker, bank, or transfer agent will report the certificates as missing to the LSSP. Similarly, if an expected delivery of a certificate through the mail doesn’t happen, investors should immediately contact the organization that arranged the transaction, typically a brokerage firm, it says.