UNITED STATES OF AMERICA Before the SECURITIES AND EXCHANGE COMMISSION SECURITIES ACT OF 1933 Release No. 7284 / April 23, 1996 SECURITIES EXCHANGE ACT OF 1934 Release No. 37137 / April 23, 1996 ADMINISTRATIVE PROCEEDING File No. 3-8957 _________________________ : In the Matter of : : ORDER MAKING FINDINGS EUGENE KONEV : AND IMPOSING REMEDIAL : SNCTIONS BY DEFAULT ------------------------- Eugene Konev (Mr. Konev) is in default under the Commission's Rules of Practice, Rules 155 and 220, 17 C.F.R.  201.155 and 201.220 (1996), because he failed to answer both the Order Instituting Public Proceedings (Order) which the Commission issued on February 22, 1996 and the Show Cause Order which I issued on March 25, 1996. Accordingly, I find that the allegations in the Order are true: 1. Mr. Konev is 47 years old and resides in Metuchen, New Jersey. 2. Mr. Konev is the sole owner and employee of I.R.S.R. Co., Inc., a New Jersey corporation incorporated in 1987 initially for the purpose of engaging in the musical recording business, and later, in 1992, for the expanded purpose of trading commodities, and providing financial and trading services. 3. Mr. Konev has never been registered with the Commission in any capacity. 4. At some point prior to July 1992, Mr. Konev entered into an oral arrangement with at least three other individuals to offer for sale unregistered, non-existent prime bank securities, including prime bank guarantees, promissory bank guarantees, prime bank notes, letters of credit, and bank instruments of guarantee ("prime bank securities") (hereafter, the "arrangement"). 5. During the period from approximately 1992 through mid- ==========================================START OF PAGE 2====== 1994, Mr. Konev offered these unregistered, non-existent prime bank securities for sale to numerous investors located in the United States and/or solicited others to purchase prime bank securities in connection with this arrangement. 6. Pursuant to the arrangement, Mr. Konev made written solicitations to numerous individuals and entities located throughout the United States, seeking their purchase of unregistered prime bank securities. Additionally, Mr. Konev solicited others by telephone, mail, and/or facsimile in connection with the arrangement. 7. Pursuant to the arrangement, Mr. Konev was to receive a commission from all transactions involving prime bank securities. 8. Mr. Konev offered prime bank securities to potential investors in several forms, including roll or "tranche" programs, which encouraged potential investors to make repeated investments or to roll the profits made from any eventual sale of the non- existent securities into future purchases of additional so-called prime bank securities. Mr. Konev typically offered the prime bank securities in denominations ranging from $8.4 million to $100 million, for total investment amounts of up to $50 billion. 9. The oral and written misrepresentations made to potential investors by Mr. Konev include, among other things, the following: a. Mr. Konev and the others involved in the arrangement were both prepared and able to obtain and sell to investors legitimate and tradable prime bank guarantees, prime bank notes, letters of credit, and other prime bank securities; and b. The proposed respondents were able to implement "tranche" programs if an investor provided the necessary funds. 10. Mr. Konev made unsupported and unrealistic representations, which he had no reasonable basis to believe were accurate or correct, to solicitees concerning the expected rates of return on these investments, which were based on representations made to him by others in the arrangement. These misrepresentations include, among other things, the following: a. In his oral and written offers, Mr. Konev either stated or implied, without basis, that the offered prime bank securities were legitimate and tradable, and failed to disclose the risks associated with such investments; ==========================================START OF PAGE 3====== b. In his offers, Mr. Konev represented that potential investors could obtain prime bank securities at a "discount" of between 79 percent and 98 percent of the securities' "face" or "total" value; ==========================================START OF PAGE 4====== c. In conversations with potential investors, Mr. Konev promised them returns of between 50 and 300 percent annually on their investments in prime bank securities; and d. Mr. Konev represented to solicitees that he had experience purchasing and selling prime bank securities. 11. Mr. Konev took no steps to validate the feasibility of trading the instruments offered or their availability and marketability. 12. Mr. Konev either intentionally or recklessly misrepresented to purchasers the nature of the investments and the availability of the prime bank securities offered for sale. 13. The prime bank securities offered by Mr. Konev were debt securities as defined in Section 2(1) of the Securities Act of 1933 (Securities Act) and Section 3(10) of the Securities Exchange Act of 1934 (Exchange Act). 14. The "tranche" investment contracts that Mr. Konev offered involved securities in the form of investment contracts within the meaning of Section 2(1) of the Securities Act and Section 3(10) of the Exchange Act. 15. Mr. Konev violated Section 17(a) of the Securities Act by, among other things, offering for sale and/or soliciting others to purchase unregistered, non-existent prime bank securities during the period from 1992 through mid-1994. 16. Mr. Konev violated Section 15(a) of the Exchange Act by, among other things, attempting to induce the purchase of securities in interstate commerce, without being registered by the Commission. I find further that it is in the public interest to sanction Mr. Konev pursuant to Section 8A of the Securities Act and Section 21C of the Exchange Act. I ORDER that Eugene Konev cease and desist from committing or causing violations and any future violations of Section 17(a) of the Securities Act and Section 15(a) of the Exchange Act. I FURTHER ORDER that the hearing scheduled to begin on April 25, 1996 be, and hereby is, cancelled. ____________________________ Brenda P. Murray Chief Administrative Law Judge