==========================================START OF PAGE 1====== UNITED STATES OF AMERICA Before the SECURITIES AND EXCHANGE COMMISSION SECURITIES EXCHANGE ACT OF 1934 Release No. 37278 / June 4, 1996 ADMINISTRATIVE PROCEEDING File No. 3-9020 --------------------------- : ORDER INSTITUTING PUBLIC In the Matter of : ADMINISTRATIVE PROCEEDING PURSUANT : TO SECTION 21C OF THE SECURITIES TRANSCORP PENSION SERVICES,: EXCHANGE ACT OF 1934, MAKING INC. : FINDINGS AND IMPOSING CEASE-AND- : DESIST ORDER : ---------------------------- I. The Securities and Exchange Commission ("Commission") deems it appropriate to institute a public administrative proceeding against Transcorp Pension Services, Inc. ("Transcorp") pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act"). Accordingly, IT IS HEREBY ORDERED that said proceeding be, and hereby is, instituted. II. In anticipation of the institution of this proceeding, Transcorp has submitted an Offer of Settlement which the Commission has determined to accept. Solely for the purposes of this proceeding and any other proceeding brought by or on behalf of the Commission, or in which the Commission is a party, and without admitting or denying the findings set forth herein, except that Transcorp admits the jurisdiction of the Commission over it and over the subject matter of this proceeding, Transcorp consents to the entry of this Order Instituting Public Administrative Proceeding Pursuant to Section 21C of the Securities Exchange Act of 1934, Making Findings and Imposing Cease-and-Desist Order ("Order") and to the entry of the findings and imposition of cease-and-desist order set forth below. ==========================================START OF PAGE 2====== III. On the basis of this Order and Respondent's Offer, the Commission finds that: A. Transcorp Pension Services, Inc. ("Transcorp") is a California corporation formed in 1982 and located in Orange County, California. Transcorp serves as a pension administrator for approximately 30,000 self-directed individual retirement accounts ("IRAs") and Qualified Retirement Plans ("Plans")(IRA account holders or participants are hereinafter referred to as "IRA customers"). Transcorp administers over $700 million in IRA customer and Plan participant assets, including over $70 million in cash. Prior to mid-1994, Transcorp had IRA customers and/or Plan participants located in every state. Transcorp provides record keeping, custodial, as agent to the custodial bank, and reporting services for its IRA customers and Plan participants. In addition, Transcorp, at the request of its IRA customers and Plan participants, sent funds to issuers in exchange for securities. Broker-Dealer Registration Violations B. Transcorp and First Regional Bank ("FRB" or the "custodian bank") of Century City, California contract for FRB to act as custodian and Transcorp to act as administrator for Transcorp's IRA customers and Plan participants' cash and assets. Specifically, Transcorp and FRB are parties to, among other agreements, an agreement entitled the "Individual Retirement Plan Custodial Agreement" ("Custodial Agreement") which specifies that FRB will act as custodian and Transcorp will act as administrator for Transcorp's IRA customer assets, and which is submitted to the IRS. A Transcorp IRA customer becomes a party to the Custodial Agreement and subject to its terms by signing and submitting an "IRA Application" which contains an "Adoption Agreement" at the time the IRA customer opens an account at Transcorp. C. At least until September 1994, pursuant to agreement with the custodian bank, Transcorp had a master custodial account at its custodian bank for all IRA customers cash in the name of "Transcorp Pension Services, Inc. IRA Custodial Account," and another master custodial account for plan participants, in the name of "Transcorp Pension Services, Inc. Qualified Business Retirement Plan Custodial Account." Transcorp receives and then deposits IRA customer and Plan participant's checks into one of these accounts at the custodian bank. D. The custodian bank delegates to Transcorp the responsibility for maintaining an accounting of the IRA customer and Plan participant ownership of the cash in these accounts. ==========================================START OF PAGE 3====== Transcorp maintains the records identifying the ownership of the cash in these accounts. E. In connection with IRA customer purchases and sales not involving a separate broker-dealer, an IRA customer submits an "Investment Authorization Form" to Transcorp along with an application to the issuer to purchase the security. Transcorp then forwards the application to the issuer along with a check drawn on the custodial account at FRB which, prior to mid-1994, was printed by computer at Transcorp's offices with a facsimile signature of a Transcorp officer. Thereafter, Transcorp enters the transaction on its records for the IRA customer and charges the IRA customer a minimum $15 fee for its services in connection with the transaction. Transcorp's policy was to instruct the issuer to issue the securities in the name of FRB's dba, "Transcorp c/f [the Plan or the IRA]." The issuers issued the securities variously in the names "Transcorp Pension Services, Inc. fbo [the customer]," "Transcorp Inc c/f [the customer]" or "Transcorp fbo [the customer]." FRB had previously received permission by the state of California to use the dba name "Transcorp." F. In connection with IRA customer purchases and sales which involve a separate broker-dealer, the IRA customer initiates the trade directly with his or her broker-dealer and contacts Transcorp to request that Transcorp send the funds to the broker-dealer. Prior to mid-1994, when Transcorp received a confirmation from the broker-dealer, it printed the check with a facsimile signature of a Transcorp officer, and sent it to the broker-dealer. The separate broker-dealers buy the securities and register them in the name of "Transcorp f/b/o [the customer]." Transcorp charges the IRA customer a minimum $15 fee for the services in connection with the transaction. G. Transcorp receives dividends paid on securities directly from the issuers or broker-dealers, deposits them in one of the custodial accounts and records the payment in its records for the IRA customer or Plan participant. In addition, issuers and brokers send trade confirmations and periodic statements directly to Transcorp; the custodian bank does not receive any confirmations or statements from the issuers or other broker- dealers. Transcorp compiles trading information from the confirmations and periodic statements and generates IRA customer and Plan participant account statements, which contain this trading information along with information on the IRA customer and Plan participant's cash held by the custodian bank. H. If an IRA customer wants to sell a security, he or she transmits the request to his or her broker-dealer or to Transcorp. Transcorp then sends the security to the issuer for redemption or liquidation, or, if it is a security not held by Transcorp, Transcorp or the customer directs the holder to send ==========================================START OF PAGE 4====== it to the issuer or sell it. If an IRA customer wants to withdraw cash from his or her IRA account, he or she sends an Investment Authorization Form (or, if the IRA customer is retirement age, a "Withdrawal Form") to Transcorp, and then at least until mid-1994, Transcorp printed the IRA customer a check with a facsimile signature of a Transcorp officer and sent the check to the IRA customer's address of record. I. At least until September 1994, Transcorp held some IRA customer and Plan participant securities in its offices. Approximately $16 million of the assets administered by Transcorp were held at its offices. J. Transcorp has, as a result of the activities described herein, operated as an unregistered broker-dealer in violation of Section 15(a) of the Exchange Act. IV. Based upon the foregoing, the Commission deems it appropriate to impose the sanctions specified in Respondent's Offer of Settlement. Accordingly, IT IS HEREBY ORDERED, pursuant to Section 21C of the Exchange Act, that Transcorp cease and desist from committing or causing any violation, and any future violation, of Section 15(a) of the Exchange Act. By the Commission. Jonathan G. Katz Secretary