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Sunday, May 19, 2024 | Back issues
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SEC Whacks 71-Year-Old New Yorker

MANHATTAN (CN) - A 71-year-old New Yorker defrauded banks by forging his daughter's signature on stock offerings when banks converted from mutual to stock ownership, the SEC says. James Sterling made $1.5 million from the scheme in 51 public offerings, according to the federal complaint.

The SEC claims Sterling did it because his plan would let him buy more shares than could legally be issued to depositors when banks convert from mutual to stock ownership. He ran the game from 2003 to 2008, the SEC says.

"To benefit from the priority subscription rights available to depositors and to evade maximum purchase restrictions, Sterling opened numerous accounts at mutual savings banks anticipating that some would convert to stock ownership," according to the complaint.

The SEC says Sterling opened accounts in his own name and in his daughter's name through the mail or through attorneys. When a bank where Sterling controlled accounts began a conversion offering, the SEC says, Sterling submitted stock-order forms for himself and his daughter, seeking the maximum number of shares offered to each depositor.

In addition to funding his daughter's stock purchases, Sterling also forged her name on stock order forms and claimed there was no arrangement to transfer the shares, according to the complaint.

"Mutual-to-stock conversion offerings have proven to be lucrative investment opportunities, as the stocks often trade in the immediate aftermarket prices that represent a substantial premium over the offering price," according to the complaint. "As a result, depositors as a whole often wind up subscribing for more shares than the bank intends to issue. When a conversion offering is oversubscribed, some eligible depositors wind up receiving only a fraction of the shares they requested, and some depositors may receive none at all."

The SEC claims Sterling defrauded the banks and their other depositors by secretly using his daughter as a nominee to acquire stock in the conversion offerings.

When the banks issued stocks to Sterling's daughter, Sterling transferred the proceeds of the stock to his own bank account, or he had the shares transferred deposited directly into his brokerage accounts, according to the complaint.

The SEC says Sterling should have disclosed that he and his daughter were "associates" or "acting in concert."

"Sterling's scheme was designed to circumvent federal and state banking regulations that require banks to give their own depositors first priority to purchase stock ahead of other interested investors when converting from mutual to stock ownership," according to the complaint. "To ensure that only depositors benefit from their priority stock subscription rights, federal and state banking regulations prohibit depositors from transferring ownership of their subscription rights or from entering into any agreement regarding the sale or transfer of shares purchased in the offering."

The SEC claims Sterling's scheme hurt legitimate depositors because most of the 51 public offerings at issue were "oversubscribed," and there was a limited amount of stock available to legitimate depositors.

The SEC seeks disgorgement, penalties and an injunction.

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