I am a registered representative and work out of a credit union. The credit union has a Medallion Stamp Signature Guarantee. We try to follow the guidelines offered by Kemark Financial Services (which administers two of the three stamp signature guarantee programs available in the U.S.), but lately it has gotten more difficult. Last week a customer of the credit union brought in a form from her insurance company authorizing her to change the bank draft account for monthly payments. The insurance company was requiring a signature guarantee. This is not what the signature guarantee was created for. I was wondering how we can rein in this kind of misuse?
When I first read this question, I recalled the famous story behind John Hancock's signature on the Declaration of Independence. Most primary school children in the U.S. learn that Governor Hancock signed his signature so large on the official Declaration of Independence document because he wanted King George III to read it without having to put on his spectacles. Of course, no one needed a medallion stamp guarantee to authenticate Governor Hancock's signature.
There are three medallion signature programs in the U.S.: the Securities Transfer Agents Medallion Program (STAMP), in which over 7,000 U.S. and Canadian financial institutions participate; the Stock Exchanges Medallion Program (SEMP), whose participants include the regional stock exchange member firms and clearing and trust companies; and the New York Stock Exchange Medallion Signature Program (MSP), to which, perhaps, obviously, NYSE member firms belong. The banks, savings and loan associations, brokerage firms and credit unions that participate in these programs guarantee the authenticity of their customers' signatures, thereby assuring immediate processing. This process protects the client against forgery of his or her signature and limits the liability of those who process these forms, i.e., transfer agents, in case the signature is ultimately proven a forgery. Kemark Financial Services administers the STAMP and SEMP programs.
(The medallion programs are different from traditional notary public services. Notaries are state government officials, who, besides verifying the identity of a signer, also administer and certify oaths and sign jurats.)
The individual writing in to “Ethical Rep.” indicated that the insurance company seeks a medallion stamp signature guarantee from the customer on a form that would change the bank draft account for monthly payments. Although this seems to me to be an appropriate use of this program, our questioner indicates that this request appears to violate the policies of the credit union and Kemark.
Of course, the questioner should be lauded for raising the question. Any violation of federal, state or local law or regulation, as well as transgressions of NASD, NYSE or (even) member firms' policies, may result in disciplinary action against a registered representative. As such, when the member firm has guidelines for the use of the medallion stamp signature guarantee, all registered persons must follow those guidelines regardless of whether they are specifically endorsed by Kemark (assuming the member firm adopted those guidelines or, more likely, agreed to adopt them as part of its participation in the program). No one should deviate from those policies unless the registered representative receives specific, written directives from the compliance and/or legal departments of their employer.
Stopping this kind of misuse starts with reporting it. Thus, a registered representative should report the misuse of the stamp program to his or her supervisor. If the supervisor is not receptive, contact the compliance and/or legal departments of the member-firm to report this misuse of such stamps.
Once the incident has been reported, sound policies and guidelines must be instituted, disseminated to all employees and periodically audited to ensure compliance. One policy that seems to work is to have the authority to use the medallion stamp limited to one or two persons in any office. This limitation will make it easier to monitor compliance, and ensure adherence to the member firm's guidelines.
For the rep, it could be the start of a very important process. If member firms seize this opportunity and re-invigorate their policies regarding the use of these medallion stamps, they may save themselves significant trouble in the future, and like John Hancock, declare their independence from regulatory tyranny.
Ernest E. Badway
Saiber Schlesinger Satz & Goldstein
Newark, N.J.
973-622-3333
[email protected]
Signature guarantee stamps or seals serve a very necessary function in the financial community. Signature guarantees are intended to prevent forgeries and assure the person or company receiving the document containing the guaranteed signature that the signature is, in fact, genuine — that it belongs to a customer of the institution and that the signature matches other signatures on file with that institution.
Because signature guarantees are so heavily relied upon by other financial institutions, improper or careless use of a signature guarantee can create enormous legal problems both for the person relying on the guarantee as well as the institution that was careless in allowing the guarantee to be used improperly.
The signature guarantee is most commonly used when someone holds securities in their own name (versus “street name” at a brokerage firm) and wants to sell or transfer the securities. Before actually transferring ownership of the stock, the transfer agent will insist that the stock transfer form have the signature guaranteed. Transfer agents insist on signature guarantees because doing so limits the transfer agent's liability and loss if the signature turns out to have been forged.
Commercial banks, savings banks, credit unions and broker/dealers typically participate in one of the Medallion signature guarantee programs: STAMP, in which over 7,000 U.S. and Canadian financial institutions participate; SEMP, which includes regional brokerage firms and clearing and trust companies; and MSP, which includes NYSE firms. A Medallion stamp indicates the financial institution is a member of one of these programs and represents a guarantee that the signature on the document is genuine. Signature guarantees speed the flow of financial transactions where the recipient of a signed document has no other way of knowing if the signature is real or a forgery.
While most commonly used for stock transfers, they are also used for a variety of other documents, such as assignment of insurance policies, bond transfers, etc. There is, however, no specified limit on what kinds of things signature guarantees can be used for, and since they are normally offered as an accommodation to the institution's customers, signature guarantees appear on a wide variety of financial and business documents.
The real problem lies not in the use of the stamp but in its misuse. I have been involved in a half dozen cases over the past 30 years involving the theft and misuse of signature guarantee stamps and notary seals. In one case, a good customer of a large bank just stole the bank's signature stamp, which had been left carelessly on a bank officer's desk, and used it to guarantee false signatures on stolen stock certificates.
When an institution is shown to have been careless in safeguarding and using its guarantee stamp, the institution may be liable to anyone relying on the guarantee.
Erwin Shustak
Shustak and Partners
San Diego, Calif. and New York
619-696-9500 (Calif),
212-688-5900 (NYC)
Not sure whether you have to pay back a forgiveable loan? Seen a work colleague do something that makes you squeamish?
Don't fret. Send your questions to Registered Rep. Contributing Editor Ann Therese Palmer at [email protected]. Then, look for an answer in a future Ethical Rep column. Anonymity guaranteed.
The Ethical Rep.
Registered Rep. 249 West 17th Street, Third Floor
New York, N.Y. 10011-5300
[email protected]
Fax: 913-514-3890.