9.4.4  Requests for Information (Cont. 1)

9.4.4.2 
Government Entities

9.4.4.2.14  (12-10-2007)
Federal Court

  1. Federal court records can provide a valuable source of information provided the information is not sealed. Such information may include: records of civil and criminal cases, including bankruptcies; records of parole and probation officers; and records of the US Marshal and US Magistrate.

9.4.4.2.15  (12-10-2007)
National Archives and Records Administration

  1. The National Archives and Records Administration (NARA) is the government authority for records management. Information on NARA can be found on the NARA Web site.

9.4.4.2.15.1  (12-10-2007)
Federal Records Center

  1. Data concerning former government employees are on file at the Federal Records Center (FRC), GSA (Civilian Personnel Records), 111 Winnebago Street, St. Louis, MO 63118. Requests for information from such files will be prepared on GSA Standard Form 127, Request for Official Personnel Folder, and mailed directly to the Federal Records Center, St. Louis, Missouri.

9.4.4.2.16  (12-10-2007)
Federal Reserve Bank Records

  1. Federal reserve bank records include records of issue of US Treasury Bonds.

9.4.4.2.17  (12-10-2007)
Railroad Retirement Board

  1. No information is available from this agency (see 20 USC §262.16, Code of Federal Regulations.)

9.4.4.2.18  (12-10-2007)
Export-Import Bank

  1. The Export-Import Bank of the United States supports the financing of Unites States goods and services, turning export opportunities into real transactions, and maintaining and creating more United States jobs. The Export-Import Bank of the United States assumes credit and country risks the private sector is unable or unwilling to accept. It loans funds to foreign countries and businesses to buy goods from United States companies. The borrower can obtain up to 50 percent of the purchase price of the goods being acquired. The selling company must fill out and submit to the bank a supplier certificate. Included in this certificate is a required statement as to any commissions paid, especially in the foreign country to foreign sales "representatives" or "agents" .

9.4.4.2.19  (12-10-2007)
Department of Education Records

  1. The Department of Education assists students with educational funding through Federal Title IV loans and grants. The Free Application for Federal Student Aid (FAFSA) is the initial application that a student completes to establish eligibility for the numerous student financial assistance programs. The main funding programs include the Direct Loan, Federal Family Education Loan, Perkins Loan and the Pell Grant.

  2. The FAFSA captures information such as: student name, address, social security number, date of birth, telephone number, drivers' license number, citizenship status, alien registration number, date of marital status, drug conviction information, state of legal residency, gender, Selective Service registration, type of degree, grade level in college, IRS tax information (earned income, spouse's income, foreign tax form, adjusted gross income, US income tax paid), dependants, veterans' status, father's and mother's name, and respective SSNs, IRS tax information (net worth, cash and savings, earned income) and signatures.

  3. Requests for this information will be directed to: Department of Education, Office of the Inspector General (OIG) 330 C Street, SW, Room 4022, Washington DC 20202, Attn.: Assistant Inspector General for Investigations.

  4. Requests should include:

    1. student's name

    2. student's date of birth

    3. SSN

  5. Department of Education, Office of Inspector General (OIG), Investigative Services, has special agents in offices nationwide. Special agents investigate various criminal offenses including identity theft, bank fraud, money laundering and program fraud. Contact information is listed on their Web site.

9.4.4.2.20  (12-10-2007)
Small Business Administration

  1. The Small Business Administration (SBA), a Department of Commerce agency, maintains records pursuant to applications for the various loans offered. These records include information as to the basis of the individual's credit and capacity to perform under contract, as well as his/her qualifications with respect to volume of business and financial resources. Small Business Administration records on individuals who have received loan assistance may be obtained from any of more than 100 local SBA offices. The legal department in the local SBA office will make such files available to special agents for review in SBA offices upon presentation of his/her credentials.

9.4.4.2.21  (12-10-2007)
Gaming Commissions and Enforcement

  1. The following are state gaming commissions and enforcement agencies.

9.4.4.2.21.1  (12-10-2007)
State of New Jersey Division of Gaming Enforcement

  1. The State of New Jersey, Department of Law and Public Safety, Division of Gaming Enforcement, completes a financial investigation on all individuals associated with casino operations including casino developers, investors, employees, vendors, and contractors. Information available includes license and employment applications and investigative reports.

  2. All requests for information from the New Jersey Division of Gaming Enforcement will be submitted as a collateral request to the SAC, Springfield, NJ Field Office.

  3. State of New Jersey regulations restrict the release of information to a duly authorized law enforcement agency. Thus, such information is only available to CI personnel and may not to be disclosed to the other operating divisions.

9.4.4.2.21.2  (12-10-2007)
Other Gaming Regulatory Agencies

  1. Web links to other gaming regulatory agencies and organizations throughout the United States are found on the state of New Jersey Web site.

9.4.4.3  (12-10-2007)
Obtaining Records from Financial Institutions

  1. This subsection outlines the methods of securing records from financial institutions.

9.4.4.3.1  (12-10-2007)
Alternative Methods of Obtaining Financial Institution Information

  1. There are special procedures which allows access to financial information from financial institutions as defined in 12 USC §3401(1) without using compulsory legal processes such as a summons, subpoena, court order, or search warrant.

  2. A financial institution is defined as any office of a bank, savings bank, credit card issuer as defined in 15 USC §1602(n), industrial loan company, trust company, savings association, building and loan, or homestead association (including cooperative banks), credit union, or consumer finance institution, located in any state or territory of the United States, the District of Columbia, Puerto Rico, Guam, American Samoa, or the US Virgin Islands.

  3. The Right to Financial Privacy Act (TRTFP), Title 12 Chapter 35, restricts government agencies from obtaining information from a financial institution without compulsory legal process or account holder consent, except for three exceptions:

    1. formal request under TRTFP

    2. special procedures request under TRTFP

    3. Patriot Act §314 request

9.4.4.3.1.1  (12-10-2007)
Authority to Use Alternative Methods

  1. Treasury Directive 15-42 delegates to the IRS Commissioner the authority to investigate criminal violations of 18 USC §1956 and 18 USC §1957, where the underlying conduct is subject to investigation under Title 26 or the Bank Secrecy Act (BSA), or 31 USC §5311 et seq (other than violations of 31 USC §5316). Because CI has the above authority, it also has the authority to utilize a Formal Written Request pursuant to 12 USC §3408. Since CI has the authority to investigate money laundering related to counterterrorism, it also has appropriate authority for a special procedures request under 12 USC §3414 (a)(1)(c) and for a Patriot Act §314 Request.

9.4.4.3.1.2  (12-10-2007)
Provisions for a Formal Written Request

  1. Title 12 USC §3408 provides the authority to utilize a Formal Written Request to obtain financial records from financial institutions. The information obtained through such requests can be used in both criminal and civil matters. A government authority may request financial records under 12 USC §3402(5) of this title, pursuant to a Formal Written Request, only if the following four conditions are met:

    1. No administrative summons or subpoena authority reasonably appears to be available to that government authority to obtain financial records for the purpose for which such records are sought.

    2. The request is authorized by regulations promulgated by the head of the agency or department.

    3. There is reason to believe that the records sought are relevant to a legitimate law enforcement inquiry.

    4. A copy of the request is served upon the customer or mailed to his/her last known address on or before the date on which the request was made to the financial institution along with a notice which states with reasonable specificity the nature of the law enforcement inquiry.

      Note:

      A customer, as defined by 12 USC §3401(5), does not include partnerships of six or more individuals or corporations.

  2. Non-grand jury Title 18 and Title 31 investigations, with the exception of Title 31 investigations done solely for the purpose of perfecting an 18 USC §981 forfeiture, fit within the requirements of 12 USC §3408.

  3. Since 26 USC §7602 grants summons authority for civil and criminal investigations of matters falling within Title 26, a Formal Written Request shall not be made in Title 26 investigations. When investigating Title 26 violations, the procedures for third party record keeper summonses under 26 USC §7609 apply.

  4. Financial institutions have the right to refuse to comply with the Formal Written Request even after a customer loses a court challenge. Title 12 USC §3411, Duty of Financial Institutions, provides that financial institutions shall deliver records requested under 12 USC §3405, an Administrative Subpoena or Summons issued pursuant to 12 USC §3407, or a Judicial Subpoena. The Formal Written Request does not equate to the mandate of a summons or subpoena and is not enforceable. However, legislative history does indicate that the notice and audit trails provided by the Formal Written Request procedures fulfill the purpose of the Right to Financial Privacy Act (RFPA) and should promote voluntary cooperation by the financial institutions with government agencies seeking records legitimately.

9.4.4.3.1.2.1  (12-10-2007)
Use of a Formal Written Request

  1. The Formal Written Request for financial records has limited use within CI. The Formal Written Request can be used when an administrative summons or a grand jury subpoena cannot be used (e.g., for the evaluation of Title 31 and Title 18 information items or to develop information to identify property for civil seizure). Any information obtained through such requests can be used for civil and criminal purposes and may be shared with other operating divisions and other law enforcement agencies.

  2. If, in a Title 31 investigation, CI seeks to obtain a financial institution’s records for civil purposes only (e.g., perfecting an 18 USC §981 forfeiture), it must use a Title 31 Summons as opposed to a Formal Written Request. Title 12 USC §3408(1) specifically provides that a Formal Written Request may not be used where a government authority may obtain the sought after records via an administrative summons or subpoena.

9.4.4.3.1.2.2  (12-10-2007)
Formal Written Request Package

  1. A Formal Written Request package was developed for use when delay of notice to the customer is desired. A major benefit of the Formal Written Request is the ability to obtain a court order delaying the notice to the customer. Title 12 USC §3409 permits the IRS to apply to the court ex parte for a delay of the notice to the customer.

  2. Four documents are needed to obtain a Formal Written Request and an Order to Delay Notice. They are:

    1. Formal Written Request (Exhibit 9.4.4-2)

    2. The Application for Delay of Notice (Exhibit 9.4.4-3)

    3. Affidavit of Special Agent (Exhibit 9.4.4-4)

    4. Ex Parte Order to Delay Notice and Order to Seal Ex Parte Application (Exhibit 9.4.4-5)

9.4.4.3.1.2.2.1  (12-10-2007)
The Formal Written Request

  1. The Formal Written Request (Exhibit 9.4.4-2) is a letter from the SAC to the financial institution requesting the specific financial information needed. The request cannot be vague (e.g. making a general request for "all bank records relating to John Doe" ). The Formal Written Request must be signed by the SAC.

9.4.4.3.1.2.2.2  (12-10-2007)
Application for Delay of Notice

  1. The Application for Delay of Notice (Exhibit 9.4.4-3) is a request made to the court for the issuance of a delay of notice to the financial institution and a request for an order to seal the application and affidavit. It is important to use the specific language contained in the Application for Delay of Notice. The requirements of the Formal Written Request mandate that certain certifications be made to the court. The Application for the Delay of Notice meets the requirements of the RFPA.

9.4.4.3.1.2.2.3  (12-10-2007)
Affidavit of Special Agent

  1. The Affidavit of Special Agent (Exhibit 9.4.4-4) consists of three parts:

    1. The investigative experience of the special agent.

    2. The reasons the records are needed for legitimate law enforcement inquiry. Special agents typically need the records for a lawful investigation or official proceeding inquiring into a violation of, or failure to comply with, any criminal statute or any regulation, rule, or order issued pursuant thereto.

    3. The reason for delay of notice.

9.4.4.3.1.2.2.4  (12-10-2007)
Ex Parte Order to Delay Notice and Order to Seal Ex Parte Application

  1. The Ex Parte Order to Delay Notice and Order to Seal Ex Parte Application (Exhibit 9.4.4-5) is signed by the US Magistrate Judge or District Judge and a copy is given to the financial institution. The order directs the financial institution to delay notice to anyone concerning the Formal Written Request. The order also seals the application and the affidavit prepared by the special agent.

9.4.4.3.1.2.3  (12-10-2007)
Approval

  1. After the SAC reviews the package (Exhibits 9.4.4-2 through 9.4.4-5) and signs the request, the package is forwarded to the US Attorney’s Office for submission to the US Magistrate Judge or District Judge. Once the order is signed by the US Magistrate Judge or District Judge, the special agent will serve the Formal Written Request and accompanying order on the financial institution.

9.4.4.3.1.2.4  (12-10-2007)
Extending the Delay of Notice

  1. After service of the Formal Written Request, the special agent must comply with further notice and record keeping requirements. The main post-service requirement is notice to the customer. Generally, the Order to Delay Notice and Order to Seal Ex Parte Application allow the special agent a 90-day delay after the signing of the order by the US Magistrate Judge or US District Judge before the special agent must give notice to the customer that a Formal Written Request was served. After the expiration of the 90 days, the special agent must either apply for an extension of the Order to Delay Notice or send notice to the customer.

  2. Exhibits 9.4.4-6 and 9.4.4-7 are examples of an Ex Parte Application for Extension of the Delay of Notice and Order Sealing Documents and the Order Extending Delay of Notice and Order to Seal. Prior to the end of the 90 days, this extension should be completed and given to the attorney for the government responsible for the investigation.

9.4.4.3.1.2.4.1  (12-10-2007)
Nunc Pro Tunc Extension

  1. In the event the Extension for the Delay of Notice is not timely filed, an Ex Parte Application for Nunc Pro Tunc Extension of Delay of Notice and Order Sealing Documents (Exhibit 9.4.4-8) can be prepared. A nunc pro tunc application is a request to the court to hold the government harmless, to restore it to its original position, and treat the application for the Extension for Delay of Notice as though it was timely filed. Prior to filing a nunc pro tunc application, determine whether the financial institution has given notice at the end of the 90 days. If not, then the nunc pro tunc application can be filed. If the financial institution has given notice, then notify the customer of the financial institution that a Formal Written Request was served. The nunc pro tunc procedure should not be a standard practice and should be used sparingly.

9.4.4.3.1.2.5  (12-10-2007)
Notice of the Formal Written Request

  1. At the expiration of the period for the delay of notice, the law requires that a Notice to the Customer (Exhibit 9.4.4-9) be sent to the customer of the financial institution stating his/her records were obtained pursuant to a Formal Written Request. Giving notice of the Formal Written Request is similar to the notice given when an administrative Title 26 summons is served on a third party record keeper. Notice is only required to be given to the owner of the account, who may or may not be the subject of the investigation.

  2. The notice must state the date of the request, the reason the notice was delayed, and the general purpose of the investigation. The example in Exhibit 9.4.4-9 illustrates that the explanations need not be lengthy or detailed. In addition to this letter, a copy of the actual Formal Written Request must be sent to the customer.

9.4.4.3.1.2.6  (12-10-2007)
Sharing Information

  1. Information obtained via a Formal Written Request may be shared with the other operating divisions without notice to the customers.

  2. Information obtained via a Formal Written Request may also be shared with other local, state, and Federal law enforcement agencies. Prior to sharing the financial information with another agency, the receiving agency must certify in writing that there is reason to believe the records are relevant to a legitimate law enforcement inquiry within their jurisdiction. (12 USC §3412(a)).

  3. Within 14 days after the records are transferred to another law enforcement agency, notice must be sent to the customer advising of the transfer. A copy of the aforementioned certification from the receiving agency must accompany this notice. The notice sent to the customer must specify the nature of the law enforcement inquiry, who the records were transferred to, and a brief statement concerning their appeal rights. If an Order to Delay Notice was obtained, this notice does not have to be sent until 14 days after the expiration of the notice.

9.4.4.3.1.2.7  (12-10-2007)
Production Costs

  1. IRS must reimburse the financial institution for expenses incurred in producing the records requested. The guidelines for the rate of payment to the financial institution are the same as for a grand jury subpoena. When bills are received pursuant to a Formal Written Request, they should be referred immediately to the budget analyst, who pays the financial institution under the IRS sub-object code for expenses incident to securing evidence.

9.4.4.3.1.2.8  (12-10-2007)
Record Keeping

  1. All Formal Written Requests, and any information obtained in response there-to, are to be kept separate from other records. Information obtained with a Formal Written Request can later be used in a grand jury investigation or for civil forfeiture.

9.4.4.3.1.2.9  (12-10-2007)
Canvas Letters Differentiated from the Formal Written Request

  1. Canvas letters, in the context of money laundering investigations under Titles 18 and 31, are different from Formal Written Request. Canvas letters are written requests made by special agents to financial institutions to learn whether a customer has an account. Title 12 USC §3413(g) provides that there is no notice requirement applicable to a legitimate law enforcement inquiry, which seeks (only) the name, address, account number and type of account of any customer. Thus, unlike Formal Written Requests, the notice requirements of RFPA do not apply to canvas letters.

9.4.4.3.1.3  (12-10-2007)
Special Procedures for Obtaining Financial Records Related to International Terrorism

  1. The USA Patriot Act (Pub. L 107-56, enacted October 26, 2001) amended the Right to Financial Privacy Act (i.e., 12 USC §3422) by granting law enforcement and intelligence agencies the ability to obtain records from financial institutions which relate to international terrorism by a " Special Procedures Request," as opposed to obtaining them via subpoena, court order or the above mentioned Right to Financial Privacy Act " Formal Request." The amended provision permits records to be obtained via this method for both intelligence purposes and in connection with investigations. These amendments make this authority available to CI.

  2. It is anticipated that CI will infrequently use this Special Procedures Request since investigations into International terrorism are generally investigated while working with an attorney for the government as an subject criminal investigation (SCI) utilizing a grand jury process with grand jury subpoenas used to obtain relevant financial records.

  3. The field office must have, at a minimum, a numbered primary investigation (PI) to use the Special Procedures Request. The collection of bank information in the PI phase should be limited to the immediate transaction. Once the transaction has been reviewed, the field office must initiate an SCI to pursue further inquiry. As necessary, the field office could continue to utilize the letter in a SCI, but a summons or subpoena would be preferable. Information requested under this provision of the USA Patriot Act must be essential for the development or furtherance of a significant investigation and should not be utilized as a routine investigative step.

  4. The Director, Field Operations and Director, Lead Development Centers (CI:OPS:LDC), are designated as the individuals to issue Special Procedures Requests for financial records related to an investigation involving terrorism. Exhibit 9.4.4-10 is the form letter to be used in making these requests.

  5. The Right to Financial Privacy Act (12 USC §3414(a)(3)) forbids the financial institution, and any officer, employee, or agent of the financial institution, from disclosing to anyone that a government authority has sought or obtained access to a customer's financial records for purposes of conducting terrorist-related investigations.

  6. Pursuant to the provisions of the Right to Financial Privacy Act, the financial institution may be entitled to reimbursement for certain expenses incurred in responding to the request for records, where the customer is an individual or a partnership of five or fewer individuals. See 12 CFR §219. The financial institution must be notified that in order to obtain payment, it must submit an itemized bill or invoice. The initial request from the Director, Field Operations will limit the financial institution’s reimbursable costs to $1000. If the financial institution anticipates costs in excess of $1000, the field office needs to obtain an estimate of the compliance costs before the costs are incurred and must obtain the appropriate approval for the amount.

  7. The suggested form letter (Exhibit 9.4.4-10) addresses each of these issues and should be accompanied by an attachment identifying the documents that are to be produced. While the letter may be adapted to suit particular circumstances of the investigation, the substance of the sample letter should be followed. The attachment to the letter should describe with reasonable particularity the required financial records, keeping in mind the significant burden and expense of searching for and photocopying financial records.

  8. Whenever this "Special Procedures Request" is used to obtain financial records, the field office must notify the Director, CI:OPS:NC.

9.4.4.3.1.3.1  (12-10-2007)
Section 314 Requests for Financial Records in Terrorism Investigations

  1. The USA Patriot Act (enacted October 26, 2001) authorized a separate information exchange regime, Section 314(a) of the USA Patriot Act (Pub. L. 107-56), to allow sharing of financial information between governmental entities and financial institutions. Federal law enforcement now has the ability to locate accounts of, and transactions conducted by, suspected terrorists or money launderers by providing their names and identifying information to FinCEN, a bureau of Treasury, which then forwards that information, both electronically and by fax, to financial institutions so that a check of accounts and transactions can made.

  2. The following procedures are to be utilized when making the request through FinCEN:

    1. Certification Form: The completed form is signed by the SAC or the Assistant Special Agent in Charge (ASAC) certifying that the subject(s) being submitted under Section 314(a) on the Certification Form are under investigation for terrorism or money laundering.

    2. Subject Information Form: The form will be typed and must include all known identifiers in the format identified. When possible, identify specific target locations where the requests should be forwarded.

    3. These forms should only be transmitted to FinCEN via the e-mail address of le314@fincen.gov.

  3. As soon as FinCEN receives a request, a computerized letter of receipt will be generated, which will provide a confirmation of the request along with a FinCEN Tracking Number. This tracking number is to be used for all correspondence related to the request.

  4. FinCEN will query its internal indices to determine if another agency has made a request on the same subject. If so, appropriate networking will take place.

    Note:

    FinCEN will not conduct any queries of Bank Secrecy Act (BSA) information or provide any commercial database research unless a separate Request for Research form is mailed to FinCEN.

  5. The request will then be sent to the financial institution(s) involved and, after 14 calendar days, the requesting special agent will be advised of all positive results that were obtained.

  6. Subsequent communications will be made directly between the law enforcement agency and the financial institution. In order to obtain records related to the Section 314 identified accounts and transactions, the law enforcement agency will need to furnish the financial institution with the appropriate compulsory legal process.

9.4.4.3.2  (12-10-2007)
Business Organizations

  1. The following business organizations typically maintain the indicated records.

9.4.4.3.2.1  (12-10-2007)
Banks

  1. It is not practical to describe all the bank records which might contain information in regard to any given customer. However, the principal commercial records which are of interest to special agents are: signature cards; deposit tickets or slips; customer’s ledger sheets for checking accounts; savings accounts, special accounts and loan accounts; registers or copies of cashiers checks, bank money orders, bank drafts, letters of credit, and certificates of deposit; teller’s proof sheets; copies of settlements with the clearing house; copies of cash transit letters; records of the purchase and sale of securities and government bonds; collection in and collection out records; customer’s unreturned canceled checks; documents relating to electronic transfers; safe deposit box records, and microfilm copies of original records.

9.4.4.3.2.2  (12-10-2007)
JP Morgan Chase & Co.

  1. The JP Morgan Chase & Co. has waived the hand delivery requirements of 26 USC §7603 and will accept summonses by mail, express service or fax (followed by mailing the original summons to the bank). The summons will be directed to JP Morgan Chase & Co., 1 Chase Manhattan Plaza – 20th Floor, Attn: Legal Coordinator, New York, NY 10081. If personal service is required, a collateral request should be sent to the SAC of the New York field office.

9.4.4.3.2.3  (12-10-2007)
Federal Reserve’s Fedwire Funds Transfer System

  1. The Federal Reserve’s Fedwire Funds Transfer System is the wire transfer system operated by the 12 Federal Reserve Banks. Over 11,300 depository institutions hold accounts at the Federal Reserve Banks and conduct Fedwire transfers that total trillions of dollars each year. Fedwire information is stored electronically for 180 days from the date of a customer request; thereafter, it is transferred to microfiche and retained for seven years.

  2. Access to electronically stored Fedwire information is governed by Title II of the Electronic Communications Privacy Act of 1986; therefore, a search warrant is required to conduct an electronic scan for Fedwire information stored electronically for 180 days or less. An administrative grand jury, or trial subpoena can be used to obtain Fedwire information stored in microfiche form. Since nothing precludes the Federal Reserve Bank from notifying a customer, a court order delaying notice or a sealed search warrant affidavit may be desirous.

  3. Prior to issuing any process for Fedwire scanning or microfiche retrieval, special agents or attorneys for the government must contact the Department of Justice Money Laundering Section for advice and instructions.

9.4.4.3.3  (12-10-2007)
Corporate Stock

  1. When a corporation is formed, capital stock representing the ownership of the corporation is authorized in the corporate charter. There are two principal classes of stock-common and preferred. If only one class of stock is authorized, it will be common stock. The number of shares authorized can only be changed by formal approval of the stockholders.

  2. Shares issued and subsequently reacquired by the corporation through purchase or donation are referred to as treasury stock. The number of shares outstanding will always equal the number of shares issued less the number of shares of treasury stock.

  3. Each stockholder is a part owner of the corporation since each share of stock represents a fractional interest in the corporation. The stockholder is entitled to a stock certificate evidencing ownership of a specified number of shares of stock of the corporation.

  4. If a stockholder desires to buy more stock, it is not necessary to obtain the permission of the company. He/she simply acquires it by purchase in the open market or privately. Conversely, if a stockholder desires to sell shares, he/she cannot demand that the company buy the stock. A stockholder is free, instead, to seek a buyer for the stock either in the market or by private sale.

  5. After the sale terms are agreed upon, the mechanics of transfer are simple. The seller signs his/her name on the back of the stock certificate and delivers it to the buyer or the buyer’s broker. A record of all outstanding certificates is kept by the corporation or by its duly appointed transfer agent, often a bank. The transfer agent has a record of the names and addresses of the stockholders and the number of shares owned by each. After determining that the old certificate is in proper form for transfer, the transfer agent issues a new certificate to the new owner. Also, most companies have a registrar. The duty of the registrar is to double check the actions of the transfer agent to prevent improper issue of stock or fraudulent transfer.

  6. A common stockholder may usually subscribe at a stated discount price to new issues of common stock in proportion to his/her holdings. This privilege, known as a stock right, is usually offered to stockholders for a limited time. During this period, the stockholder may exercise the right to purchase additional shares under the terms of the offer or may choose to sell the rights. If the stockholder allows the time limit to run out without acting, the rights become worthless.

  7. A stock warrant is a certificate which gives the holder the privilege to purchase common stock at a stated price within a specified time limit or perpetually. Warrants are often issued with bonds or preferred stocks as an added inducement to investors. The stockholder may exercise the right to purchase additional shares or choose to sell the warrants.

  8. When the price of the common stock of a corporation reaches a high market value, the corporation may choose to force the price into a more favorable trading range. To do this, the corporation splits its shares, that is, increases the number of shares outstanding without issuing additional stock. If, for example, a stockholder owned 100 shares which had a market value of $150 per share, a 3:1 stock split would increase the stockholder’s shares to 300 and decrease the market price to $50 per share. Although the stockholder now owns a greater number of shares than before the split, the value of his/her stock and his/her proportionate interest remains unchanged. Until the new stock is sold, the split has no tax effect.

  9. A corporation may pay a dividend in cash, in stock, or in property. When cash dividends are paid, the company or its dividend disbursing agent (usually a bank) sends checks to all the stockholders whose names appear on the books of the company on the so-called record date. A dividend is a prorated distribution among stockholders and when cash dividends are paid, they are in terms of so much per share. Cash dividends are usually taxable.

  10. Some companies, in order to conserve cash, pay a dividend in their own stock. A stock dividend has an effect similar to that of a stock split in that the stockholder’s proportionate share of the ownership of the company remains unchanged. A stock dividend is usually stated as a percentage of the outstanding shares (up to a maximum of 25 percent, above which it is called a stock split). A stock dividend is not taxable even though cash is paid in lieu of fractional shares-although the cash itself is taxable as a dividend.

  11. When a corporation pays a property dividend, it is usually in the form of stock of another corporation which has been acquired for investment or some other purpose. Property distributions are treated as taxable dividends.

  12. It is common practice for separate financial institutions to serve as transfer agent and dividend disbursing agent. However, a single financial institution can serve both functions.

  13. Names and addresses of institutions providing these services can be found in Securities publications such as the Financial Stock Guide Service, Moody’s, and Standard and Poor’s.

9.4.4.3.4  (12-10-2007)
Bonds

  1. When a corporation or governmental unit wishes to borrow money for some period, usually for more than five years, it will sell a bond issue. Each bond, normally of $1,000 denomination, is a certificate of debt of the issuer and serves as evidence of a loan to the corporation or governmental unit. The bondholder is a creditor of the issuer. A bond pays a stated rate of interest and matures on a stated date when a fixed sum of money must be repaid to the bondholder.

  2. Railroad, public utility, and industrial bonds are called corporate bonds. The obligations of states, counties, cities, towns, school districts, and authorities are known as municipal bonds. The US Treasury certificates, notes, and bonds are classified as government securities.

  3. Bonds are issued in two principal forms, coupon bonds, and registered bonds. Coupon bonds have interest coupons attached to each bond by the corporation which issues it. Because the corporation keeps no record of the owner of the bonds, the bonds are called bearer bonds. On the due dates for the interest, the owner clips the coupons and presents them to the authorized bank for payment. Also, the principal when due, is payable to the holder or bearer of the bonds.

  4. Registered bonds have the name of the owner written on the face of the bond. The company, or its authorized agent (usually a bank), has a record of the name and address of the owner. When interest is due, it is paid to the bondholder by check.

9.4.4.3.5  (12-10-2007)
Stock Exchanges

  1. Securities exchanges or stock exchanges neither buy nor sell securities themselves. An exchange functions as a central marketplace and provides facilities for executing orders. Member brokers representing buyers and sellers carry out these transactions. An exchange provides a continuous market for securities listed on that exchange. The exchanges are auction markets in that prices are determined by the existing supply and demand of the securities.

  2. If a security is to be traded on an exchange, the issue must be approved for listing by that exchange. The requirements for listing on the New York Stock Exchange (NYSE) are the most stringent. Although there are only about 1,700 issues traded on the NYSE, these issues are represented by the largest corporations in the country and have an aggregate value of nearly $500 billion (or 95 percent of the value of all listed securities). While the American Express (AMEX) listing standards are not as restrictive as the NYSE, they are nonetheless designed to insure an adequate market for the securities. Securities traded on the NYSE or AMEX may also be listed and traded on a regional exchange but no security is listed on both the NYSE and the AMEX.

  3. The over-the-counter securities market handles most of the securities transactions that take place in the United States. In fact, its operations are so extensive that the easiest way to describe it is to indicate what it does not do in securities transactions. The over-the-counter market does not handle the purchase or sale of securities that actually occur on securities exchanges, but it handles everything else in the way of securities transactions. The over-the-counter market is not located in any one central place. Rather, it consists of thousands of securities houses located in hundreds of different cities and towns all over the United States. These securities houses are called broker/dealers and are engaged in buying and selling securities usually for their own account and risk.

  4. The over-the-counter market is a negotiated market rather than an auction market. Prices are arrived at by broker/dealers negotiating with other broker/dealers in order to arrive at the best price. They also buy and sell securities for the account and risk of others and may charge a commission for their services. To transact their business, they communicate their buy and sell orders back and forth through a nationwide network of telephones and teletypes. The exact size of the over-the-counter market cannot be determined since the securities transactions that take place over-the-counter occur in many different places and are not reported to one central agency. However, it is known that in dollar volume, substantially more securities are traded in the over-the-counter market than on all national securities exchanges combined.

9.4.4.3.6  (12-10-2007)
Transfer Agents

  1. The principal documents available from the transfer agent are:

    1. stockholder ledger card

    2. stock certificate(s)

  2. The transfer agent keeps a record of the name and address of each stockholder and the number of shares owned, and checks that certificates presented for transfer are properly cancelled and that new certificates are issued in the name of the transferee.

  3. In many small firms, the transfer agent is usually an attorney, a bank, or the corporation itself. In most large firms the transfer agent is a bank. The transfer agent can furnish stockholder identification, stockholder position, stock certificate numbers, number of shares, dates, evidence of returned certificates, names of transferees and transferrers.

9.4.4.3.7  (12-10-2007)
Dividend Disbursing Agent

  1. The principal documents available from the dividend disbursing agent are cancelled checks and Forms 1099.

  2. The dividend disbursing agent is generally a bank and can provide stockholder identification, stockholder position, amount of dividends, form of dividends, dates paid, and evidence of payments.

9.4.4.3.8  (12-10-2007)
Stock Brokerage Firms

  1. The broker is an agent who handles the public’s orders to buy and sell securities, usually for a commission. A broker may be a corporation, partnership, or individual; and is often a member of a stock exchange or a stock exchange/over-the-counter securities firm.

  2. A registered representative (also known as a securities salesperson or account executive) personally places customers’ orders and maintains their accounts. While commonly referred to as a broker, a registered representative is usually an employee of a brokerage firm rather than an actual member.

  3. The broker can furnish virtually all source documents reflecting the activity of any given securities account. The two most often used accounts are:

    1. Cash – an account that requires securities purchases to be paid in full.

    2. Margin – an account that allows securities to be purchased on credit.

  4. Margin is the percentage of the purchase price of a security that the customer must pay. The margin requirement is established by the Federal Reserve Board. To open a margin account, a minimum amount is usually required. Stocks purchased on margin must be registered in the street name while in the account.

  5. There are two principal ways in which securities are held-in the name of the account holder and in street name. In the first instance, the securities owned simply reflect the name of the customer who maintains the account. When securities are held in street name, however, the securities are registered in the name of the broker. This occurs when securities have been bought on margin or when a cash customer wishes the security to be held by the broker, rather than in his/her own name.

  6. The principal documents available from a broker are:

    1. customer account card

    2. applications for account

    3. signature cards and margin agreements

    4. securities receipt

    5. cash receipts

    6. confirmation slips

    7. securities delivered receipts

    8. cancelled checks

    9. Forms 1087

    10. monthly account statements

9.4.4.3.8.1  (12-10-2007)
Merrill Lynch & Company

  1. Merrill Lynch & Company has waived the hand delivery requirements of 26 USC §7603 and will accept summonses by personal service, mail, or express service at: Merrill Lynch & Company, 222 Broadway, Litigation Dept. 17th Floor, New York, NY 10038.

9.4.4.3.9  (12-10-2007)
Commodities

  1. Commodity exchanges are similar to stock exchanges except that they deal in futures contracts. A futures contract is a legally binding commitment to deliver or take delivery of a given quantity and quality of commodity, at a price agreed upon in the trading pit or ring of a commodity exchange at the time the contract is executed.

  2. Accounting services usually provided by commission houses include issuance of written confirmation of all futures orders. Most firms also provide weekly purchase and sale statements that show the number of contracts purchased and sold in specific commodity markets and the current margin deposit balances. The customer normally receives a regular monthly statement that shows all trading activity, net position, and margin balance less commissions.

  3. The following is a list of commodities that are usually traded on future markets:

    1. grains

    2. oil and meal

    3. livestock

    4. poultry

    5. metals and minerals

    6. forest products

    7. textiles

    8. foodstuffs

    9. foreign currencies and financial instruments

9.4.4.3.10  (12-10-2007)
Abstract and Title Company

  1. Records include:

    1. Maps and tract books.

    2. Escrow index of purchasers and sellers of real estate-primary source of information.

    3. Escrow files-number obtained from index.

    4. Escrow file containing escrow instructions, agreements, and settlements.

    5. Abstracts and title policies.

    6. Special purpose newspapers published for use by attorneys, real estate brokers, insurance companies and financial institutions. These newspapers contain complete reports on transfers of properties, locations of properties transferred, amounts of mortgages, and releases of mortgages.

9.4.4.3.11  (12-10-2007)
Agriculture Records

  1. Potential records that may be of value to an investigation involving agriculture include: veterinarians; commission merchants; insurance; transportation and storage companies; county and state fair bonds; country farm agents; and state cattle control boards (some states maintain records of all cattle brought in and taken out of state).

9.4.4.3.12  (12-10-2007)
Automobile Manufacturing Company Records

  1. Potential automobile manufacturer and agency records that may be of value include: franchise agreements; new car sales and deliveries; used car purchases, trade-ins, and sales; service department records.

9.4.4.3.13  (12-10-2007)
Bonding Company Records

  1. Investigative and other records on persons and firms bonded, the collateral file, financial statements and data, and the address of the person on the bond.

9.4.4.3.14  (12-10-2007)
Credit Agency Records

  1. Special agents are only authorized to obtain credit reports pursuant to the following means: an order of a court with jurisdiction to issue the order; a Federal grand jury subpoena; the written authorization of the person whose credit report is sought; or an administrative summons.

  2. Information generally available from a credit agency includes:

    1. Financial status and employment information: including income; spouse’s income; place, position, and tenure of employment; other sources of income, duration, and income in former employment.

    2. Credit history: including types of credit previously obtained; names of previous credit grantors; extent of previous credit; complete payment history; existing lines of credit; payment habits and all outstanding obligations; arrest and conviction records; bankruptcies; tax liens and lawsuits; and a listing of credit agency subscribers that have previously asked for a credit report on the individual.

9.4.4.3.15  (12-10-2007)
Department Store Records

  1. Department stores typically maintain charge account records and credit files.


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