New medallion signature service created for individual investors seeking to transfer shares
New York-based entrepreneur Seth Farbman created Edgar filing service Vintage Filings and incorporation consultancy VCorp. While working on his recent venture, VStock Transfer, the former securities attorney came up with the idea of an online system delivering medallion signature guarantees for stock transfers.
What can you tell us about eSignature Guarantee and how it can help IROs?
Sitting at the hub of interacting with a large number of shareholders, we saw a tremendous pain point getting deeper and deeper over the last 18 months. In order for a shareholder to transfer shares from one to the other – whether it’s stock or a 401k plan – that shareholder needs what’s called a green medallion stamp on its signature, basically a higher level of a notary, which validates that you are who you are and that you have a right to transfer the security.
Historically you could walk into any bank, show it your ID and get this stamp with high-security ink and then be able to proceed with your transaction. The challenge is that over the last year banks have slowly but surely stopped offering this, primarily because of liability: the financial institution guarantees that the signature is genuine, making it responsible in case of forgery.
Shareholders were becoming frustrated not to be able to access their own money and were calling up IR departments to complain. At least 50 percent of our business involves trustees and executors where banks refused to stamp any of those signatures, so we’ve built a system online that’s able to validate people’s ID and provide them with the ability to do a digital signature and get the medallion stamp without leaving their home or office. IR professionals have been happy to hear there’s a third-party referral source they can point shareholders to.
How does the system work?
We wanted a service that was user-friendly but at the same time – as we’re liable for the value of the transaction – we needed to be very cautious that it accomplishes what it sets out to do, which is to confirm that people are who they say they are. So a person would go online, put in his/her information and the system will generate five questions from public data -so-called out of wallet questions-, something only you as that person would really know the answer to.
Once you pass those questions, there’s a dual authentication process where a code is sent to the shareholder’s phone and email address simultaneously. All the while that data is being run in the background against watch lists, Office of Foreign Assets Control lists and lost securities lists. So through that combination within about two minutes we’re very comfortable: if a shareholder gets through that – which is what happens for most people – then that person is who he or she is says he or she is.
Do you plan to expand your offer to international markets?
For the time being our technology is able to do the validation via data searches and algorithms based on a US social security number. We’ve been working to expand to foreign markets because every day we get calls from China, Canada, the UK or Israel, to name a few.
Our technology, which should go live this summer, will combine the data non-US clients give us to also validate it with their Google, LinkedIn or Facebook social media identity, so it all has to tie in. If there are any discrepancies between their online identities, the syetem will flag it for us to take it from there.
Right now a lot of transfer agents will waive the medallion for a foreigner if the issuer agrees to it. But they’ve all told us across the board they would no longer be waiving it if there was solution for a foreigner to get a medallion outside the US.