-------------------- BEGINNING OF PAGE #1 ------------------- UNITED STATES OF AMERICA before the SECURITIES AND EXCHANGE COMMISSION Securities Exchange Act of 1934 Release No. 36554 / December 6, 1995 Accounting and Auditing Enforcement Release No. 739 / December 6, 1995 Administrative Proceeding File No. 3-8780 ----------------------------------- : In the Matter of : ORDER MAKING FINDINGS : AND IMPOSING A CEASE : AND DESIST ORDER JOHN MCMILLAN, : : Respondent : : ----------------------------------- I. On August 14, 1995, the Securities and Exchange Commission ("Commission") issued an Order Instituting Public Cease and Desist Proceedings pursuant to Section 21C of the Securities Exchange Act of 1934 ("Order For Proceedings") against Respondent John McMillan to determine whether the allegations contained in the Order For Proceedings were true and whether a cease and desist order should be issued against John McMillan. Respondent McMillan 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 in which the Commission is a party, and without admitting or denying the allegations contained in the Order For Proceedings or the findings contained herein, except as to the jurisdiction of the Commission and to II.A below, which are admitted, McMillan, by his Offer, consents to the entry of the findings and cease and desist order set forth below: II. On the basis of the Order For Proceedings and the Offer submitted by McMillan, the Commission makes the following findings.-[1]- A. Keith Group of Companies, Inc. ("Keith Group") is a Delaware corporation with its principal office located in Hallandale, Florida. Keith Group's common stock is registered with the Commission pursuant to Section 12(g) of the Exchange Act. B. Keith Group falsely reported $4,837,899 in gains from six fictitious sales of real estate in its financial --------- FOOTNOTES --------- -[1]- The findings herein are made pursuant to the Respondent's Offer and are not binding on any other person or entity named as a Respondent in this or any other proceeding. -------------------- BEGINNING OF PAGE #2 ------------------- statements. The false and misleading financial statements were contained in Forms 10-Q and 10-K that Keith Group filed with the Commission between February 28, 1991 and May 31, 1992. C. McMillan, a long time friend of Keith Group's president, Hugh Keith, was the purported purchaser of three of the six fictitious real estate sales. Keith Group reported gains of $264,661 and $1,697,961 in its May 31, 1991 Form 10-Q and its August 31, 1991 Form 10- K, respectively as a result of the fictitious sales of real estate to McMillan. D. The sales were not supported by documentation or events that are customarily executed in connection with arm's- length real estate transactions. No deeds were issued or conveyed and no title searches were performed. Despite the existence of first and second mortgagees attached to one of the properties, McMillan never obtained releases from the mortgagees, without which, the existing mortgagees held priority interests superior to those of McMillan. E. Keith Group never received down payments from McMillan for any of the real estate sales. F. Subsequent to the purported real estate sales to McMillan, Keith Group continued to manage and to retain all rights and risks of ownership over the properties. Keith Group paid mortgages, real estate taxes, repairs and all other expenses relating to these properties. McMillan did not: (i) participate in the management of the properties he purportedly purchased; (ii) pay Keith Group any management fee; or (iii) reimburse the expenses paid by Keith Group. G. McMillan falsely claims to have: (i) purchased the three real estate parcels during 1991 for approximately $3.9 million; (ii) made down payments of approximately $1 million; and (iii) indebted himself for approximately $2.9 million in connection with those purchases. H. McMillan facilitated the reporting of the gains from the fictitious real estate sales by signing purchase contracts and promissory notes attesting to his purported purchases of real estate from Keith Group. I. In connection with the annual audit of Keith Group's August 31, 1991 financial statements, McMillan signed an audit confirmation that falsely confirmed that he owed Keith Group $1.44 million in connection with one of his purported purchases of real estate purchases. J. During the period from February 1991 until June 1992, Keith Group filed with the Commission and disseminated to the public periodic reports which contained materially misstated financial statements. Keith Group violated Section 13(a) of the Exchange Act and Rules 13a-1, 13a-13, and 12b-20 thereunder by submitting the false filings for its: (1) annual report on Form 10-K for August 31, 1991; and (2) quarterly reports on Form 2 -------------------- BEGINNING OF PAGE #3 ------------------- 10-Q for May 31, 1991. As part of the aforesaid conduct, Keith Group would and did engage in acts and practices described in Paragraphs II.A through I., above. K. As a result of the activities described in II.A. through II.J., above, McMillan caused Keith Group to violate Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder. III. ORDER In view of the foregoing, the Commission deems it appropriate and in the public interest to accept the Offer. Accordingly, IT IS HEREBY ORDERED, pursuant to Section 21C of the Exchange Act, that McMillan cease and desist from causing any violations and any future violations of Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder. For the Commission, by its Secretary, pursuant to delegated authority. Jonathan G. Katz Secretary 3