In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in December 2010, Jan E. Harris-Kimball ("Claimant Harris-Kimball"), proceding pro se, sought $12,000 in compensatory damages as the result of an alleged breach of contract arising out of Respondent Scottrade's failure to deliver to her accounts share certificates in the common shares of Bancorp International Group, Inc. ("BCIT"). In the Matter of the FINRA Arbitration Between Jan E. Harris-Kimball, Jan E. Harris-Kimball ROTH IRA, and Jan E. Harris-Kimball Traditional IRA, Claimants, vs. Scottrade Inc., a wholly-owned subsidiary of Scottrade Financial Services, Inc., Respondent (FINRA Arbitration 11-00018, September 20, 2011).
SIDE BAR: On August 31, 2005, the Securities and Exchange Commission suspended trading in BCIT through September 14, 2005, stating that:
It appears to the Securities and Exchange Commission that all of the securities currently trading in the name of Bancorp International Group, Inc. ("BCIT") and purportedly signed by Thomas Megas as President and M. Puig as Secretary are counterfeit. BCIT is quoted on the Pink Sheets LLC.
The Commission is of the opinion that the public interest and the protection of investors require a suspension of trading in the securities of BCIT.
For additional information, also see Securities and Exchange Commission v. Mario A. Pino (D.C. AZ, 08-CV-353, February 25, 2009)
In dismissing Claimants' case, the sole FINRA Arbitrator characterized Claimant Harris-Kimball as a self-directed investor who chose to buy BCIT. To the extent that the customer sustained any damages, the Arbitrator rejected any allegations that the cause of such losses was the result of any wrongful conduct by Respondent Scottrade. The Arbitrator explained that:
Respondent is not willfully refusing to deliver the shares. It cannot deliver the BCIT shares because of the actions of a third party, the Depository Trust & Clearing Corporation [DTCC], which placed a "global lock" on BCIT, shares on August 16, 2005. The global lock means that the subject shares are not eligible for delivery, transfer or withdrawal by any person or entity.
The Scottrade Agreement specifically provides that Respondent will not be liable for any loss caused directly or indirectly by suspension of trading of a stock such as that of BCIT.
The FINRA Arbitrator reasoned that when Claimant Kimball signed the Scottrade Agreement, on behalf of herself personally and the other two Claimant accounts, that she assumed the risk that any investment could lose its value and/or be subject to a trading halt, as was the unfortunate case with BCIT. Because the SEC had suspended trading in BCIT, Respondent cannot deliver to Claimants the shares that they seek. Consequently, Respondent Scottrade has no liability to Claimants for any resulting losses.
The details of the BCIT saga, apparently involving some 1,500 investors, are documented on the "Let BCIT Trade" website. On that site's "History" page, the following explanation is provided:
Energy Source History
In the spring of 2005 Energy Source, Inc. (formerly Bancorp International Group, Inc.) was a non-trading Nevada shell corporation with 4,890,000 shares outstanding and 25,000,000 shares authorized, controlled by CEO, Thomas Megas and Secretary Martin Duffy. Mr. Megas had planned to bring the company current with its SEC filings to reverse merge his real estate holdings into the company, and had in fact contracted an accountant to start work on the filings.
Unfortunately for the London, UK based Mr. Megas, Mario Pino usurped control of his non-trading shell corporation in a case of corporate identity fraud. Unbeknownst to Megas, Mr. Pino and accomplice Pamela Thompson ultimately printed two series of counterfeit Bancorp certificates. After fraudulently filing documents at the Nevada Secretary of State to hijack control of the corporation, they flooded the market with 41 counterfeit certificates representing hundreds of millions of shares through their associates and various hired promoters.
The counterfeit Bancorp shares entered the public marketplace without a single eyebrow raised at the Depository Trust and Clearing Corporation, the behemoth private entity responsible for settlement and clearing of all equities. Amazingly, the DTCC cleared hundreds of millions of counterfeit Bancorp shares without discovering that Pamela Thompson, acting as "transfer agent" for Mario Pino had never registered with the SEC as such. In addition, the DTCC never contacted Energy Source's previous TA, Pacific Stock Transfer, to verify any TA change.
Despite Megas discovering the fraud, and then contacting the SEC, various regulators, and the DTCC, the invalid shares continued to trade for several months on the public markets. In fact the stock continued to trade for several weeks even after the DTC released a "Notice to Participants" suspending all services except custody as of 8/11/2005.
After trading northwards of two billion shares in just a few months, the SEC finally suspended trading on the stock on 8/31/2005. The DTCC has maintained its "Global Freeze", or suspension of DTC services ever since, due to the unknown, but obviously immense number of counterfeit shares that they cleared through their system. . .