==========================================START OF PAGE 1====== UNITED STATES OF AMERICA Before the SECURITIES AND EXCHANGE COMMISSION SECURITIES EXCHANGE ACT OF 1934 Release No. 38578 / May 7, 1997 ADMINISTRATIVE PROCEEDING File No. 3-9306 ______________________________ : In the Matter of: : ORDER INSTITUTING PUBLIC : PROCEEDINGS, MAKING GARY J. DIVALL and : FINDINGS AND IMPOSING PAUL E. MAGNUSON, : REMEDIAL SANCTIONS : Respondents. : _____________________________: I. The Securities and Exchange Commission (Commission) deems it appropriate and in the public interest that public proceedings be instituted pursuant Sections 15(b) and 19(h) of the Securities Exchange Act of 1934 (Exchange Act) against Gary J. DiVall (DiVall) and Paul E. Magnuson (Magnuson). In anticipation of these proceedings, DiVall and Magnuson have submitted Offers of Settlement which the Commission has determined to accept. Solely for the purpose of this proceeding and any other proceeding brought by or on behalf of the Commission, or to which the Commission is a party, DiVall, by his Offer of Settlement, without admitting or denying the Commission's findings, except the findings contained in sections III.A., III.B. and III.I., which are admitted, consents to the entry of this Order Instituting Public Proceedings, Making Findings and Imposing Remedial Sanctions (Order), and Magnuson, by his Offer of Settlement, without admitting or denying the Commission's findings, except the findings contained in sections III.C., III.D. and III.I., which are admitted, consents to the entry of this Order. II. Accordingly, IT IS HEREBY ORDERED THAT proceedings pursuant to Sections 15(b) and 19(h) of the Exchange Act be, and they hereby are, instituted. ==========================================START OF PAGE 2====== -2- III. On the basis of this Order and the Offers of Settlement submitted by DiVall and Magnuson, the Commission finds that: RESPONDENTS A. DiVall, age 56, resides in Madison, Wisconsin. DiVall was, at all times relevant herein, and continues to be, registered with the National Association of Securities Dealers (NASD) as a registered representative and a limited principal. B. DiVall was a general partner of the DiVall Insured Income Fund Limited Partnership (DiVall 1) from September 1986 through February 1993, of the DiVall Insured Income Properties 2 Limited Partnership (DiVall 2) from November 1987 through February 1993, and of the DiVall Income Properties 3 Limited Partnership (DiVall 3) from December 1989 through February 1993. C. Magnuson is 44 years old and resides in Madison, Wisconsin. Magnuson was, at all times relevant herein, and continues to be, registered with the NASD as a registered representative and a limited principal. D. Magnuson was also a general partner of DiVall 1 from September 1986 through February 1993, of DiVall 2 from November 1987 through February 1993, and of DiVall 3 from December 1989 through February 1993. FEDERAL SECURITIES LAWS VIOLATIONS E. From approximately October 1988 through April 1992, DiVall and Magnuson willfully violated Section 17(a) of the Securities Act of 1933 (Securities Act) in that they, in the offer or sale of securities, specifically, securities issued or offered by DiVall 1, DiVall 2 and DiVall 3 (collectively known as the DiVall Funds), by the use of the means or instruments of transportation or communication in interstate commerce or by the use of the mails, 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 the 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 upon purchasers or prospective purchasers of such securities. As a part of this conduct, DiVall and Magnuson: (1) made misrepresentations and omissions of material fact to investors concerning DiVall's and Magnuson's use of approximately $2.6 million from the DiVall Funds for personal purposes; (2) failed to keep adequate books and records reflecting the use of investor funds for personal purposes; (3) made misrepresentations to the ==========================================START OF PAGE 3====== -3- auditors of the DiVall Funds concerning the use of investor funds; and (4) as controlling persons of the DiVall Funds, caused those public partnerships to file false and misleading periodic reports with the Commission. F. From approximately October 1988 through April 1992, DiVall and Magnuson willfully violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder in that they, in connection with the purchase or sale of the securities described in paragraph III.E. above, by the use of the means or instrumentalities of interstate commerce, or of the mails, directly or indirectly, employed devices, schemes or artifices to defraud; made untrue statements of material fact or omitted to state material facts necessary in order to make the statements made, in the 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 upon the purchasers of the securities, as described in paragraph III.E. above. G. From approximately October 1988 through July 1992, DiVall and Magnuson willfully violated Section 13(b)(5) of the Exchange Act and Rule 13b2-1 thereunder by knowingly falsifying the books, records and accounts of the DiVall Funds relating to the use of approximately $2.6 million from the DiVall Funds for personal purposes. H. DiVall and Magnuson willfully violated Section 13(b)(5) of the Exchange Act and Rule 13b2-2 thereunder by making materially false or misleading statements or omitting to state material facts necessary in order to make statements made, in light of the circumstances under which such statements were made, not misleading, to an accountant in connection with the preparation of the balance sheets contained in the public filings of the DiVall Funds from December 31, 1988 through July 10, 1992. DiVall's and Magnuson's misstatements and omissions related to the misuse of investor funds described in paragraph III.E. above, and their subsequent efforts to conceal that misuse through, among other things, the creation of a fictitious entity. I. On April 10, 1997, the United States District Court for the Western District of Wisconsin, in the case of Securities and Exchange Commission v. Gary J. DiVall and Paul E. Magnuson (Civil Action No. 96-C-634-S), entered a Final Judgment and Order of Permanent Injunction by consent against DiVall and Magnuson, which enjoins them from future violations of Section 17(a) of the Securities Act, and Sections 10(b), 13(a) and 13(b)(5) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1, 13a- 11, 13a-13, 13b2-1 and 13b2-2 thereunder. ==========================================START OF PAGE 4====== -4- IV. In view of the foregoing, it is in the public interest to impose the sanctions specified in the Offers of Settlement, such sanctions to begin from the date of the entry of the Commission's order. Accordingly, IT IS ORDERED THAT: Gary J. DiVall and Paul E. Magnuson be, and hereby are, barred from association with any broker, dealer, municipal securities dealer, investment adviser or investment company. By the Commission. Jonathan G. Katz Secretary