SECURITIES ACT OF 1933
Release No. 7725 / August 16, 1999
SECURITIES EXCHANGE ACT OF 1934
Release No. 41745 / August 16, 1999
File No. 3-9711
|In the Matter of
MEDA BELLE MCKINNEY
|ORDER MAKING FINDINGS
AND IMPOSING REMEDIAL
SANCTIONS AND CEASE-AND-
In these proceedings instituted 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"), Respondent Meda Belle McKinney ("McKinney") has submitted an Offer of Settlement ("Offer") which the Securities and Exchange Commission ("Commission") has determined to accept.1 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 therein, except for jurisdiction and the findings set forth below in subparagraphs II.A. and II.B., which she admits, McKinney, by her Offer, consents to the findings and the imposition of the sanctions and other relief contained in this Order Making Findings and Imposing Remedial Sanctions and Cease-and-Desist Order ("Order").
On the basis of this Order and Offer submitted by McKinney, the Commission finds that:2
A. Innovative Consulting Services, Inc. ("ICS") was registered with the Commission as a broker-dealer from December 1991 until September 1998, when its registration was revoked. At all times relevant to this proceeding, ICS maintained its headquarters in Sligo, Pennsylvania.
B. McKinney was, at all times relevant to this proceeding, a registered representative of ICS.
C. McKinney participated in a fraudulent scheme whereby, as a registered representative for ICS, she made misrepresentations and omissions in connection with the offer and sale of limited partnerships to public investors.
D. From in or about 1993 through in or about 1996, ICS, through certain individuals, raised more than $16 million from hundreds of investors by fraudulently offering to the public and selling approximately 43 limited partnerships. McKinney and the owner of ICS were the primary salespeople for these partnerships. Most of the investors reside in Pennsylvania, but ICS also sold the securities to investors in other states. None of these limited partnerships had registration statements on file or in effect with the Commission.
E. As part of this fraudulent scheme, ICS agreed to pay investors 13% annually on their investments. The limited partnership funds raised by ICS were loaned primarily to local businesses that were in poor financial condition. The borrowers of investor funds were supposed to pay 16% on such funds, but generally did not generate sufficient revenue to do so. In order to pay investors the promised 13% return and to repay principal to investors, ICS used new investor funds to pay existing investors.
F. From in or about 1993 through in or about 1996, respondent McKinney willfully violated Section 17(a) of the Securities Act, and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, in that she, directly or indirectly, in connection with the offer, purchase or sale of securities, by use of the means or instruments of transportation or communication in interstate commerce, the means or instrumentalities of interstate commerce, or the mails: (1) employed devices, schemes or artifices to defraud; (2) obtained money and property by means of, and made, untrue statements of material fact and omitted to state material facts necessary to make the statements made, in the light of the circumstances under which they were made, not misleading; and (3) engaged in acts, transactions, practices, and courses of business which operated as a fraud and deceit upon the offerees, purchasers and prospective purchasers of such securities. McKinney relied on ICS' owner who masterminded the fraudulent scheme and concealed at least part of it from her. Nevertheless, McKinney was at least reckless because she did not fulfill the obligation of due diligence required of a registered representative of a broker-dealer. For example:
(1) McKinney misrepresented to investors the safety of the limited partnerships, telling investors the limited partnerships were as safe as bank certificates of deposit, even though the investments were highly risky. McKinney also prepared brochures and fliers sent to investors wherein she made comparisons to bank certificates of deposit.
(2) McKinney failed to tell investors that the source of their interest payments would be funds raised from new investors.
(3) McKinney received $42,000, in the form of a loan, from one of the limited partnerships without the knowledge or authorization of the investors. She has not repaid any of this money.
G. From 1993 through 1996, McKinney willfully violated Sections 5(a) and 5(c) of the Securities Act in that she, directly and indirectly, made use of the means and instruments of transportation and communication in interstate commerce and of the mails to offer, sell and deliver after sale to members of the public, certain securities, namely limited partnerships offered through ICS, when no registration statement was filed or in effect as to said securities pursuant to the Securities Act.
H. McKinney has submitted a sworn financial statement and other evidence and has asserted her financial inability to pay disgorgement, prejudgment interest or a civil penalty. The Commission has reviewed the sworn financial statement and other evidence provided by McKinney and has determined that she does not have the financial ability to pay disgorgement of $42,000 plus prejudgment interest, or a civil penalty.
On the basis of the foregoing, the Commission deems it appropriate and in the public interest to impose the sanctions and other relief specified in McKinney's Offer of Settlement.
Accordingly, IT IS HEREBY ORDERED that:
A. McKinney is ordered to cease and desist from committing or causing any violations and any future violations of Sections 5(a), 5(c) and 17(a) of the Securities Act, and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder;
B. McKinney be, and hereby is, barred from association with any broker or dealer, with the right to reapply for association after two years to the appropriate self-regulatory organization, or if there is none, to the Commission;
C. McKinney shall pay disgorgement of $42,000 plus prejudgment interest, but that payment of such amount is waived, and no civil penalty is imposed, based upon McKinney's demonstrated financial inability to pay.
IT IS FURTHER ORDERED that 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 McKinney provided accurate and complete financial information at the time such representations were made; (2) determine the amount of disgorgement, prejudgment interest or civil penalty to be imposed; and (3) seek any additional remedies that the Commission would be authorized to impose in this proceeding if McKinney's Offer of Settlement had not been accepted. No other issues shall be considered in connection with this petition other than whether the financial information provided by McKinney was fraudulent, misleading, inaccurate or incomplete in any material respect, the amount of disgorgement, prejudgment interest or civil penalty to be imposed and whether any additional remedies should be imposed. McKinney 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
|An Order Instituting Public Proceedings against McKinney was issued by the Commission on September 22, 1998.
|The findings herein are made pursuant to McKinney's Offer of Settlement and are not binding on any other person or entity in this or any other proceeding.