UNITED STATES OF AMERICA Before the SECURITIES AND EXCHANGE COMMISSION SECURITIES ACT OF 1933 Release No. 7574 / September 9, 1998 SECURITIES EXCHANGE ACT OF 1934 Release No. 40415 / September 9, 1998 ADMINISTRATIVE PROCEEDING File No. 3-9696 ________________________________ : ORDER INSTITUTING A PUBLIC In the Matter of : CEASE-AND-DESIST PROCEEDING : PURSUANT TO SECTION 8A OF THE DONALD E. WHORL, : SECURITIES ACT OF 1933 AND : SECTION 21C OF THE SECURITIES Respondent. : EXCHANGE ACT OF 1934, MAKING : FINDINGS, AND IMPOSING CEASE- : AND-DESIST ORDER _______________________________ : The Securities and Exchange Commission ("Commission") deems it appropriate that a public cease-and-desist proceeding be and hereby is instituted pursuant to Section 8A of the Securities Act of 1933 ("Securities Act") and Section 21C of the Securities Exchange Act of 1934 ("Exchange Act") against Donald E. Whorl ("Whorl"). In anticipation of the institution of this proceeding, Whorl has submitted an Offer of Settlement, which the Commission has determined to accept. Solely for the purpose of this proceeding 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 findings contained herein, except that Whorl admits the jurisdiction of the Commission over him and over the subject matter of this proceeding, Whorl by his Offer of Settlement consents to the entry of this Order Instituting a Public Cease-and-Desist Proceeding Pursuant to Section 8A of the Securities Act of 1933 and Section 21C of the Securities Exchange Act of 1934, Making Findings, and Imposing Cease-And-Desist Order ("Order"), and to the entry of the findings and the cease-and- desist Order set forth below. Accordingly, IT IS HEREBY ORDERED that a proceeding pursuant to Section 8A of the Securities Act and Section 21C of the Exchange Act be, and hereby is, instituted. On the basis of this Order, and the Offer of Settlement submitted by Whorl, the Commission finds that:[1] Empower Telecommunications Corporation ("Empower") was incorporated in Delaware on January 11, 1993. At times relevant Empower's office was located in Los Angeles, California and Empower was engaged in the business of providing telecommunications to the country of Indonesia. Whorl resides in Los Angeles, California and was trained as an accountant. He served as Empower's treasurer and a director from incorporation until June 15, 1993. Whorl was also Empower's chief financial officer from March 31, 1994 until November 15, 1996. From January 1993 through November 1995, Empower and a related company wholly owned by its Chairman sold $7.6 million of Empower securities to approximately 350 investors through the use of the mails and telephones. Empower's Chairman misappropriated approximately $2.5 million of this amount for his personal business ventures. Whorl was both aware of this misappropriation and also executed checks to Empower's Chairman to facilitate this scheme to misappropriate Empower funds. In connection with the sale of the $7.6 million of Empower securities, Empower distributed a Private Placement Memorandum (PPM) to prospective investors. Whorl both reviewed the PPM, and also prepared the Balance Sheet which was included in the PPM. This Balance Sheet materially and grossly overstated the value of Empower's assets at $19.6 million. In accordance with General Accepted Accounting Principles, and in truth and in fact, these assets should have been recorded on Empower's Balance Sheet at a zero valuation. The PPM materially also misrepresented the nature of Empower's business relationship with a subsidiary of Bell Atlantic Corporation. The PPM represented that the Bell Atlantic subsidiary was a joint venturer with Empower in the development of Indonesian telephone exchanges. Whorl was aware, however, that there were no agreements between Bell Atlantic or its subsidiary and Empower. The PPM also failed to disclose Empower's outstanding obligations to its investment banker. In particular, the PPM neither disclosed Empower's liability for a $551,000 bridge loan received from its investment banker, nor did it disclose the investment banker's contractual right to receive 4.9% of Empower's outstanding shares as its fee for finding a broker-dealer to sell Empower's shares. Whorl was aware of both of these obligations of Empower to its investment banker. The PPM also failed to disclose Empower's side agreement to provide additional moneys to a joint venturer and business partner in the Indonesian telephone exchange venture of up to $1.5 million. Moreover, the PPM failed to disclose that this same business partner was actually insolvent and therefore unable to fulfill its role in the joint venture. Whorl determined the amount owed by Empower to its business partner and also reviewed the business partner's financial statements which disclosed its precarious financial condition. The PPM touted Empower's Chairman's financial acumen and background. But the PPM failed to disclose the Chairman's 1991 voluntary personal bankruptcy petition, in which he listed $13.4 million in liabilities and only $8,900 in assets. Whorl was aware of the bankruptcy petition. I.The failure to disclose the bankruptcy petition and the false statements made in the PPM regarding the alleged relationship with a Bell Atlantic subsidiary, the value of Empower's assets, its financial liabilities to its investment banker and Indonesian joint venturer were clearly material in view of the representations made to Empower shareholders regarding the principal role of the Chairman as the source of business for Empower and the likelihood of success of the company based upon the prior successes in international business of the Empower Chairman. Moreover, these misstatements were also material in view of the thinly capitalized structure of Empower and the necessity for making the Indonesian telephone exchange venture successful if the corporation was to survive. The shareholders were not advised of the fragile economic status of Empower which was greatly worsened when the Chairman of Empower misappropriated Empower moneys for his own purposes. J.Finally, the PPM stated that Empower's first offering would terminate on March 31, 1993. The PPM authorized Empower to extend the offering for up to 90 additional days, to June 30, 1993. But when the offering was still not fully subscribed on July 18, 1993, Empower again extended the offering, to August 10, 1993. Empower neither offered to refund investors' funds, nor did it offer investors the opportunity to receive a refund or to reaffirm their interest in the offering. As previously stated, Whorl reviewed the PPM. K.Whorl violated Section 17(a) of the Securities Act by, directly or indirectly, in the offer or sale of any security by the means and instruments of transportation or communication in interstate commerce or by use of the mails: (1) with scienter, employing devices, schemes, or artifices to defraud; (2) obtaining money or property by means of untrue statements of a material fact or any omission to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; or (3) engaging in any transaction, practice, or course of business which operated or would operate as a fraud or deceit upon purchasers of securities, as is more particularly described in Paragraphs III. C. through J. above. L.Whorl violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder by, directly or indirectly, by the use of any means or instrumentality of interstate commerce or of the mails, with scienter: (1) employing a device, scheme, or artifice to defraud; (2) making an untrue statement of a material fact or omitting to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; or (3) engaging in an act, practice, or course of business which operates or would operate as a fraud or deceit upon any person, in connection with the purchase or sale of any security, as is more particularly described in Paragraphs III. C. through J. above. M.Whorl violated Section 10(b) of the Exchange Act and Rule 10b-9 thereunder by, directly and indirectly, using the means and instrumentalities of interstate commerce and of the mails in connection with the purchase or sale of securities, to make any representation: (1) to the effect that Empower stock was being offered or sold on an "all-or-none" basis, unless the stock was part of an offering or distribution that was made on the condition that all or a specified amount of the consideration paid for such stock would be promptly refunded to the purchaser unless (a) all of the shares that were offered were sold at a specified price within a specified time, and (b) the total amount due to Empower was received by Empower by a specified date; or (2) to the effect that the Empower stock was being offered or sold on any other basis whereby all or part of the consideration paid for any such share would be refunded to the purchaser if all or some of the shares were not sold unless the stock was part of an offering or distribution that was being made on the condition that all or a specified part of the consideration paid for such stock would be promptly refunded to the purchaser unless (a) a specified number of units of the shares were sold at a specified price within a specified time, and (b) the total amount due to the seller was received by him by a specified date, as is more particularly described in Paragraph III. J. above. Whorl has submitted an Offer of Settlement in which, without admitting or denying the findings herein, he consents to the Commission's entry of this Order, which: (1) makes findings, as more particularly stated above; and (2) orders Whorl to cease and desist from committing or causing any violation and any future violation of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rules 10b-5 and 10b-9, thereunder. V. In view of the foregoing, the Commission deems it appropriate to accept Whorl's Offer of Settlement and to impose the Cease and Desist Order specified in the Offer of Settlement. Accordingly, IT IS HEREBY ORDERED that pursuant to Section 8A of the Securities Act and Section 21C of the Exchange Act, Whorl shall cease and desist from committing or causing any violation and any future violation of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rules 10b-5 and 10b-9 thereunder. By the Commission. Jonathan G. Katz Secretary **FOOTNOTES** [1]:/The findings herein are made pursuant to Whorl's Offer of Settlement and are not binding on any other person or entity named as a respondent in this or any other proceeding.