Trust Updates Archive

In response to subscriber requests, the index of the current issue of TRN
will be e-mailed shortly after the newsletter has been mailed. (The June
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•   Takeover Paranoia Leads to Stock Manipulation and $285,000 Fine
With compensation tied to targeted benchmarks, the incentive to inflate
a stock's price is very tempting and very real. That conclusion was
reached by a mutual fund industry study in 1999, sponsored in part by
Goldman Sachs. Four years later, Goldman paid a $450,000 fine for
alleging manipulating the stock of a client. The Securities and Exchange
Commission has been monitoring potential abuses since 2002. The SEC's
latest settlement is with LNB Bancorp, the holding company of Lorain
National Bank. The SEC accused LNB of manipulating its own stock through
its pension plans.

•   Late Trading--It's Not Just for Banks Anymore
As a result of the closing of Security Trust Company (see TRN November
2003), regulators are taking a closer at independent trust banks.
Trust activities at thrifts are apparently also garnering closer
inspection. The Office of Thrift Supervision on April 28 issued a
cease-and-desist order against Davidson Trust Company. Davidson, as part
of the order, agrees to cease all late trading, market timing, and
related activities.

•   IRS Withdraws Cash Balance Regulations
IRS proposals to protect benefits of older workers under cash-balance
pension plans are being withdrawn while the agency works with the Bush
administration on employee-protection legislation. IRS proposed regulations
were recently updated to provide more  protection for older workers
(see TRN March 2004). The recent update was  in response to congressional criticism.

•   Plan's Securities Trades with Affiliate Permitted, If Anonymous
A sanction on a fiduciary is not justified merely because, by chance,
the other party in a "blind" transaction turns out to be a
party-in-interest, according to the 1974 congressional conference report
on ERISA. This congressional observation has led the U.S. Depart-ment of
Labor to conclude that if both parties are anonymous, securities
transactions between a fiduciary and an affiliate would not on its face
violate ERISA. However, if the fiduciary "knew, or had reason to know,"
the identity of the other party, the transaction will not be considered

•   Reducing Benefits Does Not Affect Grandfathered Provisions
Amending a defined plan to reduce benefit accruals, while retaining
existing floor-offset arrangements, does not void grandfathered
provisions applicable to a plan, according to the DOL.

ABA Warns of High Cost of SEC Bank Broker-Dealer Rules
Nearly five years after the passage of the Gramm-Leach-Bliley Act, the
Securities and Exchange Commission is following through on its mandate
to revise bank broker-dealer rules as a condition of expanded
underwriting opportunities for banks. After a June 2001 version ran into
stiff opposition from Congress and bank regulators, the SEC withdrew its
proposal. On June 2, 2004, the SEC approved revised rules and set an
August 1 deadline for public comment--a very short-window of time, given
that as of June 18 the SEC had yet to publish the proposed rules. The
SEC's June 2 announcement provides some overview information of what the
revised rules contain. The American Bankers Association is sounding the
warning that implementation could cost bankers "a lot of money."

•   ABA--Priorities for Second Halfof 2004
The American Bankers Association Trust Counsel Committee recently
announced its priorities for the next six months.

•   Accepting Accounts of Foreign Governments and Political Figures
In light of recent fines against Riggs Bank (see TRN May 2005), federal
banking regulators have issued a guidance on establishing accounts with
foreign governments, foreign embassies, and foreign political figures.

•   OCCBanking Bulletins--New Products
Reminds national banks of the due diligence process they should follow
to "prudently" manage the risks associated with new, expanded, or
modified bank products and services. "Bank interest income has been
declining for several years," according to TRUST PERFORMANCE REPORT,
TRN's sister publication.

•   OCC Advisory Letters--Aiding & Abetting
In the wake of recent multimillion dollar fines paid by banks and other
financial institutions involved with the collapse of Enron, the SEC has
issued to banking regulators a letter outlining a financial
institution's potential liability when involved in structured financial
transactions (see also Banking Bulletin 2004-22). Though these
transactions usually involve commercial banking, fiduciaries should
exercise caution if acting as investors in any such transactions.