Why Medallion Signature Guarantees are Important

Why is a signature guarantee essential?  Stock transfer agents insist on signature guarantees because the guarantee protects the transfer agent from liability to the shareholder if a signature turns out to be forged. A signature guarantee allows the transfer agent to look to the provider of the signature guarantee for payment of any loss. If your name appears on a stock certificate as the holder of the shares, the shares may not be transferred to another person or sent to your brokerage account unless you sign a stock power authorizing the cancellation of the certificate and issuance of one or more new certificates.  Therefore, it is very important to the shareholder, the issuer of the securities and the stock transfer agent that there is clear evidence that the signature on the stock power is genuine.

If, for example, you purchase shares from someone in a private negotiated transaction, a Medallion Signature Guarantee obtained by the seller ensures you that the transfer of shares is valid. If you are clearing the Rule 144 legend from your paper certificate for a sale of the shares in the public markets, the stock transfer agent must be certain that it was indeed you who signed the stock power.  This is a necessary step before your bank or securities broker  sends the certificate and stock power to the transfer agent requesting that a new paper certificate be issued without a restrictive legend or that the shares be sent by DWAC to the broker.

Signature Guarantees: Preventing the Unauthorized Transfer of Securities 

The signature guarantee thwarts forgeries that could result in the unauthorized transfer of stock. If you hold securities in physical certificate form and want (a) to sell the shares in a private transaction, (b) to clear the restrictive legend from the certificate so that the shares can be sold in the public markets or (c) to have one or more new certificates issued as part of (i) planning your estate, (ii) making gifts or (c) breaking up shares represented by one certificate into more than one certificate for any reason, you are required to sign a stock power and that signature should always be guaranteed.

An investor can obtain a signature guarantee from a financial institution such as a commercial bank or securities broker dealer that participates in one of the Medallion Signature Guarantee programs. The three Medallion signature guarantee programs of the banking and securities industry are the:

* Securities Transfer Agents Medallion Program (STAMP) whose participants include more than 7,000 U.S. and Canadian financial institutions.

* Stock Exchanges Medallion Program (SEMP) whose participants include the regional stock exchange member firms and clearing and trust companies.

* New York Stock Exchange Medallion Signature Program (MSP) whose participants include NYSE member firms.

If a financial institution is not a member of a recognized Medallion Signature Guarantee Program, it cannot provide signature guarantees. Also, you must be a customer of a participating financial institution before the participating financial institution will guarantee your signature. The most practical alternative to obtaining a Medallion Signature Guarantee from a bank, savings and loan association, brokerage firm, or credit union is the Internet Medallion stamp service provided by eSignatureGuarantee.

A Medallion imprint or stamp indicates that the financial institution or other provider is a member of a Medallion signature guarantee program and is an acceptable signature guarantor. By participating in the program, participants in the Medallion program can guarantee customer signatures with the assurance that their guarantees will be immediately accepted for processing by transfer agents.

Transfer agents typically require that the shareholder use a Medallion program recognized by the transfer agent. the cost of a Medallion Signature Guarantee may vary from provider to provider.

If the Issuer or Transfer Agent Informs Me That a Notarized Signature Will Be Accepted or That the Signature Guarantee Requirement Can Be Waived, What Should I Do?

Some microcap issuers have been known to allow shareholders to provide a notarized signature on a stock power if the shareholder informs the issuer that the shareholder’s bank does not participate in the Medallion Signature Guarantee program.  Also, a few issuers of securities and stock transfer agents may offer to waive the signature guarantee under some circumstances.  The securities industry generally believes that it is an absolute necessity to provide a medallion guarantee stamp.

It is dangerous for a public company or its stock transfer agent to permit notarized signatures as an alternative to a Medallion Guarantee. Notary publics are not adequately regulated in many states and the surety bond required for notaries in the United States is uniformly quite low (in some states as little as $5,000.00). A waiver of the signature guarantee has potential to create losses that cannot be recovered, and, candidly,  an issuer or stock transfer agent that offers to waive the Medallion Signature Guarantee requirement is being unnecessarily careless.  You protect yourself by obtaining a Medallion Signature Guarantee when you sign a stock power or, when purchasing shares from another person, requiring that the seller provide a Medallion Signature Guarantee.

Before the availability of the sSignatureGuarantee, many shareholders, particularly those outside the United States, had significant problems obtaining a Medallion Signature Guarantee for many reasons.  Now, if your financial institution does not participate in the Medallion Signature Guarantee program or if obtaining that guarantee is difficult, the services of eSignatureGuarantee are an excellent alternative.

How to Obtain a Medallion Signature Guarantee

Many banks, brokerage firms, trust companies, savings associations and other financial institutions offer Medallion Signature Guarantees to their customers. If you are not located in the United States, contact the United States Embassy for information regarding where to obtain a signature guarantee or contact eSignatureGuarantee through its website.

Caution:  If the signature guarantee is dated, it will only be valid for that specific date. You should confirm that no date will be entered before the guarantee stamp is placed on the stock power with your signature.

Should I use the stock power on the back of the certificate or a separate stock power?

You will find a stock power on the back of each stock certificate. However, the best practice is to use a stock power separate from the one found on the back of the paper certificate. The use of a separate stock power protects you against fraud. If you need a form of stock power, Logan Law Firm will send one to you without charge.

It is important to send the signed, signature guaranteed stock power(s) to the stock transfer agent in separate envelope from the envelope in which you send the original stock certificate(s).  Both envelopes should be sent by a delivery method that tracks them and requires a signature acknowledging receipt.

Do I Sign the Stock Power Before I Obtain the Signature Guarantee or Wait to Sign in Front of a Person?

You must follow the procedures of the Medallion Signature Guarantee program that you will use. Banks always require that you sign in the presence of the officer authorized to guarantee your signature. Securities brokers typically do not require you to be present when you sign the stock power if the brokerage firm has a specimen of your original signature (which was likely obtained when you opened your account).  eSignatureGuarantee is the only medallion stamp provider that allows you to verify your identity online.

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