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U.S. Securities and Exchange Commission

UNITED STATES OF AMERICA
Before the
SECURITIES AND EXCHANGE COMMISSION

RELEASE NO. 41841 / September 8, 1999
ADMINISTRATIVE PROCEEDING
FILE NO. 3-10003

In the Matter of

David A. Johnston,
Respondent.

ORDER INSTITUTING PROCEEDINGS,
MAKING FINDINGS AND IMPOSING
REMEDIAL SANCTIONS PURSUANT
TO SECTIONS 15(b) and 19(h) OF THE
SECURITIES EXCHANGE ACT OF 1934

I.

The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest that public administrative proceedings be instituted against David A. Johnston ("Johnston") pursuant to Sections 15(b) and 19(h) of the Securities Exchange Act of 1934 ("Exchange Act").

II.

In anticipation of the institution of these proceedings, Johnston has submitted an Offer of Settlement ("Offer") which the Commission has determined to accept. Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission, or to which the Commission is a party, and without admitting or denying the Commission's findings contained herein, except the Commission's findings set forth in Paragraphs III.A. and C., which are admitted, Johnston consents to the entry of this Order Instituting Proceedings, Making Findings and Imposing Remedial Sanctions pursuant to Sections 15(b) and 19(h) of the Exchange Act ("Order").

Accordingly, IT IS HEREBY ORDERED that proceedings pursuant to Sections 15(b) and 19(h) of the Exchange Act be and hereby are instituted.

III.

On the basis of this Order and Johnston's Offer, the Commission finds that:

A. From at least February 1992 to in or about December 1992, Johnston was not registered as a broker or a dealer with the Commission pursuant to the Exchange Act. During all relevant times, Johnston used Edison Worldwide Capital ("Edison Worldwide") to effect transactions in, or induce or attempt to induce the purchase or sale of, certain securities, at a time when neither Johnston nor Edison Worldwide was registered with the Commission as a broker or dealer pursuant to the Exchange Act.

B. From at least September 1990 to in or about December 1992, no registration statement had been filed with the Commission or was in effect under the Securities Act of 1933 ("Securities Act") with respect to the securities of Canadian Trade Bank, Ltd. ("CTB")

C. On March 2, 1999, in the case of SEC v. Michael J. Randy, (Civil Action File No. 94 C 5902), the Honorable Wayne Andersen, United States District Judge for the Northern District of Illinois, entered summary judgment and an Order of Permanent Injunction and Other Equitable Relief against Johnston, enjoining Johnston from violating Sections 5(a), 5(c) and 17(a) of the Securities Act, Sections 10(b) and 15(a)(1) of the Exchange Act and Rule 10b-5 promulgated thereunder. In entering summary judgment, the Court made the following Findings of Fact and Conclusions of Law.

From at least September 1990 to December 1992, Michael J. Randy ("Randy") offered and sold over $16 million of certificates of deposit ("CDs") issued by CTB to over 500 investors in many states. Randy represented that CTB was a bank licensed in Montserrat and later Grenada. Randy offered CTB CDs to investors through a nationwide sales network, including Johnston. In fact, CTB was not a bank licensed in Montserrat or Grenada. Instead, Randy operated CTB from his residence and offices in Illinois as a classic Ponzi scheme, paying his personal expenses, unrelated business expenses, making speculative investments and loans, and paying earlier investors. Johnston and his Edison Worldwide sales agents, without conducting an adequate investigation as to the legitimacy of CTB, its CDs or Randy, offered and sold at least $1.7 million of these bogus CTB CDs from at least February 1992 to December 1992. As part of that offer and sale, Johnston provided investors with promotional materials provided by Randy or which parroted Randy's statements that falsely represented the existence and location of CTB, its bank licensing, the insurance and reserves backing the CDs, the safety and returns on the investment and the use of investor proceeds and omitted to state other material facts. Johnston further stressed the CTB CD's exceptionally high rate of return, as well as its safety. Moreover, Johnston continued to offer and sell CTB CDs despite warnings from Florida's state agency responsible for regulating securities that the offer and sale of CTB CDs was improper. Thus, in addition to acting recklessly by inadequately investigating Randy and CTB, Johnston acted knowingly by disregarding warnings and continuing to sell the CDs. As a result, the Court found that Johnston violated the antifraud provisions of the federal securities laws. The Court further found that CTB securities were not registered with the Commission nor was Johnston or Edison Worldwide registered with the Commission as a broker-dealer. Thus, the Court found that Johnston violated the securities registration and broker-dealer registration provisions of the federal securities laws.

D. During the period from at least February 1992 to in or about December 1992, Johnston willfully violated Sections 5(a) and 5(c) of the Securities Act, in that he offered to sell, offered to buy, sold and delivered after the sale to members of the public through the use or medium of any prospectus or otherwise certain CTB securities, at a time when no registration statement was on file or in effect with the Commission with respect to such securities. As part of this conduct, Johnston engaged in the acts and practices detailed in paragraphs III.B. and C. above.

E. During the period from at least February 1992 to in or about December 1992, Johnston willfully violated Section 17(a) of the Securities Act in that he, in the offer or sale of certain CTB securities, directly or indirectly, employed devices, schemes or artifices to defraud; obtained money or property by means of untrue statements of material facts, or omissions to state material facts necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading; or, engaged in transactions, practices or courses of business which would or did operate as a fraud or deceit. As part of this conduct, Johnston engaged in the acts and practices detailed in paragraph III.C. above.

F. During the period from at least February 1992 to in or about December 1992, Johnston willfully violated Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder in that he, in connection with the purchase or sale of certain CTB securities, directly or indirectly: employed devices, schemes or artifices to defraud; obtained money or property by means of untrue statements of material fact or omitted to state material facts necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading; or engaged in acts, practices or courses of business which would or did operate as a fraud or deceit. As part of this conduct, Johnston engaged in the acts and practices detailed in paragraph III.C. above.

G. During the period from at least February 1992 to in or about December 1992, Johnston willfully violated Section 15(a)(1) of the Exchange Act in that he effected transactions in, or induced or attempted to induce the purchase or sale of, certain CTB securities (other than an exempted security or commercial paper, bankers' acceptances, or commercial bills), at a time when Johnston was not registered with the Commission as a broker or dealer. As part of this conduct, Johnston engaged in the acts and practices detailed in paragraphs III.A. and C. above.


H. While engaged in the activities described in paragraphs III.A. through III.G., Johnston, directly or indirectly, made use of any means or instruments of transportation or communication in interstate commerce or of the mails.

IV.

In light of the foregoing, it is in the public interest to impose the sanctions specified in the Offer submitted by Johnston.

Accordingly, IT IS HEREBY ORDERED that David A. Johnston be, and hereby is, barred from association with any broker or dealer.

By the Commission.

Jonathan G. Katz

Secretary

http://www.sec.gov/litigation/admin/34-41841.htm


Modified:09/08/1999