UNITED STATES OF AMERICA before the SECURITIES AND EXCHANGE COMMISSION SECURITIES ACT OF 1933 Release No. 7571 / September 3, 1998 SECURITIES EXCHANGE ACT OF 1934 Release No. 40396 / September 3, 1998 ADMINISTRATIVE PROCEEDING File No. 3-9693 :ORDER INSTITUTING PUBLIC In the Matter of :ADMINISTRATIVE AND :CEASE-AND-DESIST PR0- S KEVIN C. SPERANZA; :CEEDINGS PURSUANT TO and ROBERT A. MAGGI, :SECTION 8A OF THE :SECURITIES ACT OF 1933 Respondents. :AND SECTIONS 15(b), 19(h) :AND 21C OF THE SECURITIES :EXCHANGE ACT OF 1934, :MAKING FINDINGS AND :IMPOSING REMEDIAL :SANCTIONS I. The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest to institute public administrative and cease-and-desist proceedings pursuant to Section 8A of the Securities Act of 1933 ("Securities Act") and Sections 15(b), 19(h) and 21C of the Securities Exchange Act of 1934 ("Exchange Act") against Respondents Kevin C. Speranza ("Speranza") and Robert A. Maggi ("Maggi"). II. In anticipation of the institution of these proceedings, Respondents Speranza and Maggi submitted Offers of Settlement ("Offers") to the Commission, 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 in which the Commission is a party, and without admitting or denying the findings contained herein, except as to the jurisdiction of the Commission over Respondents Speranza and Maggi and over the subject matter of this proceeding and with respect to Respondent Speranza as to Section III., paragraph 1., below, and with respect to Respondent Maggi as to Section III., paragraph 2., below, which are admitted, Respondents Speranza and Maggi by their Offers consent to the entry of findings and remedial sanctions set forth below. Accordingly, IT IS ORDERED that proceedings pursuant to Section 8A of the Securities Act and Sections 15(b), 19(h) and 21C of the Exchange Act be, and, they hereby are, instituted. III. On the basis of this Order and the Offers submitted by Respondents Speranza and Maggi, the Commission finds that:[1] 1.At all relevant times, Respondent Speranza was associated as an officer and director of Florida Health Plans & Investments Inc. ("FHPI"), an unregistered broker-dealer. 2.At all relevant times, Respondent Maggi was associated as an officer and director of FHPI, an unregistered broker-dealer. The Fraudulent Offer and Sale of Medco, Inc., Promissory Notes 3.From approximately September 1996 until October 1997, Medco, Inc. ("Medco") fraudulently offered and sold securities to the general public in the form of promissory notes ("Medco notes"). Medco raised over $16 million from approximately 400 investors nationwide. Medco claimed that capital raised from investors would be used to purchase medical equipment which would serve as collateral for the investment. Investors and prospective investors received offering materials which described Medco and the investment program. Specifically, investors were told that the investment was fully secured and collateralized by medical equipment appraised at a 50% loan to value ratio (i.e., twice the value of the investor's principal investment). The offering package also included detailed biographies of its principals, including its president. Medco did not provide investors with any documents establishing the purchase or lease of the medical equipment. Medco promised investors returns of between 12% and 16% per annum depending upon the maturity of the note and the amount invested. Interest was paid monthly during the term of the Medco notes and there was no minimum or maximum investment. No registration statement was ever filed or was in effect with the Commission in connection with the securities offered by Medco. 4.Medco falsely represented to investors that it was using investor funds to purchase and lease medical equipment. In fact, of the $16 million raised from investors, less than $500,000 was used to purchase and lease medical equipment. The remaining investor proceeds were completely unsecured because, contrary to what was represented, no other equipment was being purchased or leased. Instead, a substantial portion of investor funds were used to purchase aircraft, a home, cars and other expenditures for the personal use and benefit of Medco's principals. In addition, Medco was operating a modified Ponzi scheme by using new investor monies to pay interest to its existing investors. 5.Medco's offering materials misrepresented and omitted material information concerning the background of Medco's president. For example, Medco's offering materials falsely represented that its president had a law degree, had worked for a major securities brokerage firm, was a member of the board of directors of a large metropolitan hospital, and implied that he was registered as an investment advisor with the Commission. None of this was true. Furthermore, the offering documents failed to disclose that Medco's president had been terminated by a now defunct broker- dealer in 1986 that claimed that he had falsified information on his employment application and Form U-4. 6.Medco also misrepresented its operating history to investors. In its offering materials, Medco stated that it had "marshaled its depth of talent and long history in the medical and financial fields to forge one of the most exciting low risk/high return, stable products for the savvy investor." On its Internet web page, Medco represented that it had been in business for sixteen years. In fact, Medco first incorporated in August 1996 and only became licensed to do business in Florida in January 1997. Prior to forming the company, Medco's president, had no apparent connection to the medical equipment industry. Speranza and Maggi's Participation in the Medco Offering 7.From December 1996 through October 1997, Speranza and Maggi raised approximately $915,000 from 22 investors earning $46,915 in commissions through their offers and sales of the Medco notes. They also earned an additional $91,580 in commissions from overrides on Medco notes sold by other agents working under them, bringing their total commissions earned to approximately $138,495. 8.Speranza and Maggi marketed the Medco notes throughout Florida, Georgia, Texas and South Carolina. They were responsible for recruiting numerous sales agents through seminars, flyers and direct solicitations. These sales agents reported to Speranza and Maggi and had to have all sales materials approved by them. Speranza and Maggi personally conducted training seminars for these agents during which the other agents were instructed on the Medco program and provided with sales presentation books. 9.Speranza and Maggi solicited prospective investors through newspaper advertisements. When contacted by a prospective investor in response to an advertisement they would give the investor a brief overview of the Medco program. The investor would then receive offering materials from Medco. Speranza and Maggi would later send a follow-up solicitation letter to the prospect in order to schedule a sales call. In this letter, they claimed that: "I have reviewed and continue to review MEDCO's records through the State of Florida and the Better Business Bureau. MEDCO has an untarnished record in every respect." 10.Speranza and Maggi both described the Medco notes to prospective investors as "safe and secure" and reiterated the material misrepresentations found in the offering materials. To one prospective investor, Speranza likened the Medco notes to a certificate of deposit. Maggi, would tell prospective investors that Medco was able to obtain medical equipment at a 50% loan to value ratio because recent legislation had prohibited a doctor from referring patients for medical tests using medical equipment the doctor owned. Maggi would then show prospective investors a copy of a Florida Statute to emphasize this point. In reality, the statute did not prohibit such a practice. 11.During sales pitches with investors, Speranza and Maggi utilized sales presentation books as a tool to explain the Medco investment and as a reference source if investors had specific questions about the investment. The sales presentation books were put together by Speranza and Maggi and contained, among other things, Medco's offering materials, examples of the documents that needed to be executed by the investor, a Dun and Bradstreet report on Medco, a Better Business Bureau report on Medco, and a question and answer sheet partially created by them to refer to during sales presentations. In particular, the question and answer sheet contained false financial information about Medco, about how long it had been in business, and compared the Medco notes to bank certificates of deposit. 12.Although Speranza and Maggi were told by Medco's counsel that he could not provide them with a written opinion as to whether the Medco notes were securities, they nevertheless included a letter in their sales presentation books from Medco's counsel to the president of Medco representing that Medco was in compliance with all state and federal statutes. In addition, they failed to replace the Better Business Bureau report included in the presentation book with a subsequent report by the bureau which detailed that the State of Texas had issued a cease publication order against FHPI and Medco for violating the anti-fraud and registration provisions of that state's securities laws. 13.Due to the egregiousness of Medco's fraud a minimal amount of inquiry by Speranza and Maggi would have revealed the fraud. Speranza and Maggi made no attempt to independently verify whether Medco was purchasing medical equipment at a 50% loan to value ratio and then that it was leasing the equipment. Further, they never inquired into the purported background and experience of Medco's president. In addition, a simple inquiry to the National Association of Securities Dealers, Inc. would have revealed that Medco's president had been terminated for falsifying information on his employment application with a broker-dealer. 14.Speranza and Maggi, throughout their involvement with Medco, were confronted by numerous "red flags" which they failed to heed. For instance, Speranza and Maggi were put on notice that Florida State securities regulators were investigating Medco in connection with its sales of the Medco notes. They were also advised by Medco's counsel that he could not provide them with a written opinion as to whether the Medco notes were securities. Further, Medco failed to provide Speranza and Maggi with any documentation to verify that Medco was purchasing and leasing medical equipment. The company also prohibited them from contacting any outside entity or person with whom they did business. Despite all these "red flags," Speranza and Maggi continued to actively solicit investors. Even after the State of Texas issued the cease publication order against their company, FHPI, to prohibit sales of the Medco notes in that state, they continued to sell the notes in Florida. 15.Speranza and Maggi knowingly or recklessly distributed false and misleading offering materials, presentation books, flyers and other materials to investors and prospective investors which included, among other things, representations that the Medco notes were a low risk investment, that investor proceeds would be used to acquire medical equipment, that investor funds would be fully secured, and which contained false statements and omissions about the background of Medco's president. These misrepresentations would be considered important by any reasonable investor and are therefore material under the standards enunciated in TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438 (1976). Legal Findings 16.Based upon the aforesaid conduct, Respondents Speranza and Maggi willfully violated, and committed or caused violations of, Sections 5(a) and 5(c) of the Securities Act, in that they, directly and indirectly, made use of the means and instruments of transportation and communication in interstate commerce and of the mails, to offer to sell and to sell to members of the public certain securities, namely the Medco notes issued by Medco, when no registration statement was filed or in effect as to said securities pursuant to the Securities Act. 17.Based upon the aforesaid conduct, Respondents Speranza and Maggi willfully violated, and committed or caused violations of, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, in that, in connection with the purchase and sale of certain securities, namely the Medco notes issued by Medco, by use of the means and instrumentalities of interstate commerce and by use of the mails, Respondents Speranza and Maggi, directly and indirectly, employed devices, schemes, and artifices to defraud; made untrue statements of material facts and omitted to state material facts necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading; and engaged in acts, practices and a course of business which would and did operate as a fraud and deceit. 18.Based upon the aforesaid conduct, Respondents Speranza and Maggi willfully violated, and committed or caused violations of, Section 17(a)(1) of the Securities Act, in that, in the offer and sale of certain securities, namely the Medco notes issued by Medco, by use of the means and instruments of transportation and communication in interstate commerce and by use of the mails, Respondents Speranza and Maggi, directly and indirectly, employed devices, schemes and artifices to defraud. 19.Based upon the aforesaid conduct, Respondents Speranza and Maggi willfully violated, and committed or caused violations of, Sections 17(a)(2) and 17(a)(3) of the Securities Act, in that, in the offer and sale of certain securities, namely the Medco notes issued by Medco, by the use of the means and instruments of transportation and communication in interstate commerce and by use of the mails, Respondents Speranza and Maggi directly and indirectly, obtained money or property by means of untrue statements of material facts and omissions to state material facts necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading; and engaged in transactions, practices and a course of business which would and did operate as a fraud and deceit upon the purchasers and prospective purchasers of such securities. 20.Respondents Speranza and Maggi have submitted sworn financial statements and other evidence and have asserted their financial inability to pay disgorgement plus prejudgment interest and a civil penalty. The Commission has reviewed the sworn financial statements and other evidence provided by Respondents Speranza and Maggi and has determined that Respondent Speranza does not have the financial ability to pay disgorgement of $68,709 plus prejudgment interest and a civil penalty and that Respondent Maggi does not have the financial ability to pay disgorgement of $69,786 plus prejudgment interest and a civil penalty. IV. Based on the foregoing, the Commission deems it appropriate and in the public interest to impose the sanctions specified by Respondents Speranza and Maggi in their Offers. Accordingly, IT IS ORDERED that: 1.Respondent Maggi be, and hereby is, barred from association with any broker, dealer, municipal securities dealer, investment adviser or investment company, with the right to apply for association after three (3) years to the appropriate self- regulatory organization, or if there is none, to the Commission. 2.Respondent Speranza be, and hereby is, barred from association with any broker, dealer, municipal securities dealer, investment adviser or investment company, with the right to apply for association after three (3) years to the appropriate self- regulatory organization, or if there is none, to the Commission. 3.Respondent Maggi, cease and desist from committing or causing any violations and any future violation of Sections 5(a), 5(c) and 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5, promulgated thereunder. 4.Respondent Speranza, cease and desist from committing or causing any violations and any future violation of Sections 5(a), 5(c) and 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5, promulgated thereunder. 5.Respondent Maggi shall pay disgorgement of $69,786 plus prejudgment interest, but that payment of such amount be waived based upon Respondent's demonstrated financial inability to pay. 6.The Division of Enforcement may, at any time following the entry of this Order, petition the Commission to: (1) reopen this matter to consider whether Respondent Maggi provided accurate and complete financial information at the time such representations were made; (2) determine the amount of the civil penalty to be imposed; and (3) seek any additional remedies that the Commission would be authorized to impose in this proceeding if Respondent's Offer had not been accepted. No other issues shall be considered in connection with this petition other than whether the financial information provided by Respondent was fraudulent, misleading, inaccurate or incomplete in any material respect, the amount of civil penalty to be imposed and whether any additional remedies should be imposed. Respondent may not, by way of defense to any such petition, contest the findings in this Order or the Commission's authority to impose any additional remedies that were available in the original proceeding. 7.Respondent Speranza shall pay disgorgement of $68,709 plus prejudgment interest, but that payment of such amount be waived based upon Respondent's demonstrated financial inability to pay. 8.The Division of Enforcement may, at any time following the entry of this Order, petition the Commission to: (1) reopen this matter to consider whether Respondent Speranza provided accurate and complete financial information at the time such representations were made; (2) determine the amount of the civil penalty to be imposed; and (3) seek any additional remedies that the Commission would be authorized to impose in this proceeding if Respondent's Offer had not been accepted. No other issues shall be considered in connection with this petition other than whether the financial information provided by Respondent was fraudulent, misleading, inaccurate or incomplete in any material respect, the amount of civil penalty to be imposed and whether any additional remedies should be imposed. Respondent may not, by way of defense to any such petition, contest the findings in this Order or the Commission's authority to impose any additional remedies that were available in the original proceeding. By the Commission. Jonathan G. Katz Secretary **FOOTNOTES** [1]:The findings herein are made pursuant to Respondents Speranza and Maggi Offers of Settlement and are not binding on any other person or entity in this or any other proceeding.