UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 17149 / September 24, 2001
SECURITIES AND EXCHANGE COMMISSION V. THE CHASE MANHATTAN BANK, U.S.
District Court for the Northern District of Illinois, Civil Action No. 01 C
7364 (N.D. Il. September 24, 2001)
On September 24, 2001, the Securities and Exchange Commission
(Commission) filed a complaint seeking a $1 million civil penalty
against The Chase Manhattan Bank (Chase) in the United States District
Court for the Northern District of Illinois alleging that Chase
committed recordkeeping and reporting violations while acting as a
registered transfer agent for numerous corporate and municipal bond
issues. Chase consented to the imposition of the penalty without
admitting or denying the allegations in the Complaint. Chase, a New
York banking corporation wholly owned by J.P. Morgan Chase & Co., and
based in New York, New York, is a registered transfer agent. According
to the Complaint, by March 1998, Chase, and companies with which it
had merged, had identified but failed to reconcile inaccuracies in its
computerized bond recordkeeping system totaling more than $46.8
billion. Chase reasonably and correctly believed that the $46.8
billion did not reflect a liability of anywhere near this magnitude.
Chase based its belief upon, among other reasons, the cash management
systems it had in place, which were generally accurate and did not
reflect any liability at the time. The Complaint further alleges that
Chase did not fully reconcile these records until June 2000. During
this two-year period, according to the Complaint, Chase
* Filed false TA-2 Reports (annual reports required of transfer
agents);
* Discovered that its computerized records of the outstanding dollar
amount of bonds held by bondholders, which the Commission requires
a transfer agent to maintain, contained significant errors. These
records are maintained in its master securityholder files;
* Discovered that its records, by issuer, of the dollar amount of
bonds issued and outstanding, which the Commission requires a
transfer agent to maintain, often were not readily accessible or
reliable. These records are maintained in control books;
* Failed to provide the required notice in the prescribed manner to
the appropriate regulators, or to issuers, that its records showed
significant differences between its master securityholder files
and its control books for a large number of bond issues.
The Complaint alleges that ultimately Chase was able to reconcile the
vast bulk of the inaccuracies in its bond recordkeeping system. It
SNIPPETS:
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
THE CHASE MANHATTAN BANK, U.S. District Court for the Northern District of Illinois, Civil
On September 24, 2001, the Securities and Exchange Commission filed a complaint seeking a $1
Chase, a New York banking corporation wholly owned by J.P. Morgan Chase & Co., and based in
According to the Complaint, by March 1998, Chase, and companies with which it had merged, had
Chase based its belief upon, among other reasons, the cash management systems it had in
During this two-year period, according to the Complaint, Chase * Filed false TA-2 Reports;
* Discovered that its computerized records of the outstanding dollar amount of bonds held by
* Discovered that its records, by issuer, of the dollar amount of bonds issued and
* Failed to provide the required notice in the prescribed manner to the appropriate
The Complaint alleges that ultimately Chase was able to reconcile the vast bulk of the
Approximately $28.8 million of that amount resulted from payment errors, including situations
These amounts were not material to any financial reports filed by J. P. Morgan Chase or its
The Commission also simultaneously entered a cease-and-desist order prohibiting Chase from
The Commission thanks the Federal Reserve Bank of New York and the State of New York Banking
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