U.S. Securities and Exchange Commission
Litigation Release No.18393 / October 6, 2003
U.S. v. Peter J. Zaccagnino, et al., Crim. No. 03-10095 (USDC C.D. Ill./Peoria Division); Securities and Exchange Commission v. Two-Thirds International, Inc., Peter J. Zaccagnino III, John L. Klein a/k/a John Klein Loffredo, Merrill H. Klein and Sterling International Bahamas Ltd., No. 98-1324-Civ. ORL-18A (USDC M.D. Fla./Orlando Division)
The Commission announced today that, on September 26, 2003, Peter J. Zaccagnino III and two other defendants were criminally indicted by a federal grand jury for racketeering, mail fraud and other related offenses in connection with their sale of prime bank instruments. Zaccagnino's alleged misconduct was in part the subject of a successful enforcement action brought by the Securities and Exchange Commission in 1998.
The 15-count indictment, obtained by the United States Attorney for the Central District of Illinois (Peoria Division), alleges that Zaccagnino, his wife and another individual fraudulently raised approximately $20 million from several hundred investors by soliciting them to invest money in fictitious high-yield prime-bank "trading programs," including programs involving historical railroad bonds issued in the nineteenth century.
As a result of its lawsuit, in June 1999 the Commission succeeded in obtaining a permanent injunction against Zaccagnino enjoining him from future violations of Section 17(a) of the Securities Act of 1933 ("Securities Act") and Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder. Further, Zaccagnino and his alter ego offshore entity, Two-Thirds International, Inc., collectively were ordered to pay disgorgement and prejudgment interest of nearly $2 million and directed to pay civil penalties.
The Commission's civil action alleged that Zaccagnino sold historical railroad bonds as investment quality instruments or offered to place the bonds in prime bank-type "trading programs." According to the Commission's complaint, the bonds had value only as historical memorabilia and the trading programs touted by Zaccagnino were fictitious. The Commission's complaint further alleged that Zaccagnino and his entities raised approximately $4.8 million through the sale of the bonds to scores of investor at prices up to $330,000 each, and that, through his false and misleading statements, Zaccagnino violated Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.