U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 21714 / October 29, 2010
Securities and Exchange Commission v. James D. Sterling, Case No. 10-Civ.-8206 (SAS) (S.D.N.Y. Oct. 29, 2010)
SEC Charges James D. Sterling in Scheme to Defraud Banks and Their Depositors in Over 50 Public Stock Offerings
The Securities and Exchange Commission today announced the filing of a civil injunctive action against James D. Sterling, of New York, NY, for conducting a fraudulent scheme involving 51 public offerings of banks that were converting from mutual to stock ownership. The SEC’s complaint alleges that, from January 2003 until October 2008, Sterling defrauded these banks and their depositors by secretly using his daughter as a nominee to acquire stock in conversion offerings in violation of the offering terms and applicable banking regulations. Over the course of the fraudulent scheme, Sterling reaped $1,502,193 in ill-gotten gains.
When banks convert from mutual to stock ownership, depositors receive priority rights to purchase shares in the offering ahead of other interested investors. To ensure that only depositors benefit from these priority rights, banking regulations and offering terms prohibit depositors from transferring their purchase rights or shares obtained in the offering. The SEC’s complaint alleges that Sterling, to evade these restrictions, opened numerous savings accounts at mutual banks for himself, and in his daughter’s name, in the hope that some would convert to stock ownership. When banks converted, Sterling executed his daughter’s signature on stock order forms certifying that she was purchasing stock solely for her own account and was not transferring her purchase rights or the underlying stock to anyone else. The SEC’s complaint alleges that Sterling funded his daughter’s purported stock purchases, controlled the depositing and sales of the shares issued to her, and transferred all of her purported stock sale proceeds to himself. Because most of the 51 offerings at issue were oversubscribed, Sterling’s scheme harmed legitimate bank depositors by limiting the amount of stock available to them.
The SEC’s complaint, which was filed in the United States District Court for the Southern District of New York, charges Sterling with violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder.
Sterling, without admitting or denying the allegations in the complaint, has consented to the entry of a final judgment permanently enjoining him from violating the abovementioned provisions, ordering him to pay $2,084,494 in disgorgement and prejudgment interest, and imposing a civil monetary penalty of $150,000.