SECURITIES ACT OF 1933
Release No. 7726 / August 18, 1999

SECURITIES EXCHANGE ACT OF 1934
Release No. 41754 / August 18, 1999

ADMINISTRATIVE PROCEEDING
File No. 3-9978

In the Matter of

JOHN J. MCGARRY,
Respondent.

ORDER INSTITUTING
PUBLIC PROCEEDINGS,
MAKING FINDINGS
AND IMPOSING
REMEDIAL SANCTIONS
AND CEASE-AND-DESIST
ORDER

I.

The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest that administrative proceedings be 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") against John J. McGarry ("McGarry").

In anticipation of the institution of these proceedings, McGarry has submitted an Offer of Settlement ("Offer") which the Commission has determined to accept. Solely for the purposes of these proceedings and any other proceedings brought by or on behalf of the Commission or in which the Commission is a party, McGarry, by his Offer, consents, without admitting or denying the findings contained herein, except that he admits that the Commission has jurisdiction over him and over the subject matter of these proceedings, to the entry of this Order Instituting Public Proceedings, Making Findings and Imposing Remedial Sanctions and Cease-and-Desist Order ("Order").

Accordingly, IT IS ORDERED that proceedings against McGarry be, and hereby are, instituted.

II.

On the basis of this Order and the Offer, the Commission finds that:1

1.At all times relevant to this action, McGarry, age 65, was employed as a registered representative with a broker-dealer which has been registered with the Commission since 1989 and is headquartered in San Diego, California.

2.Equipment Leasing Corporation of America ("ELCOA") was incorporated in Delaware in May 1986 and maintains offices in Bala Cynwyd, Pennsylvania. Its primary business purpose is to acquire, hold and retain general commercial industrial equipment for lease throughout the United States. The company is a wholly-owned subsidiary of Walnut Equipment Leasing Co., Inc. ("Walnut"), which is engaged in substantially the same business as ELCOA.

3.Welco Securities, Inc. ("Welco") is a broker-dealer which has been registered with the Commission since 1983. The firm is located in Bala Cynwyd, Pennsylvania. Welco, which is controlled by the same individuals who control Walnut and ELCOA, engages in no significant business other than the sales of Walnut and ELCOA securities. McGarry was never employed as a registered representative with Welco.

4.Since 1980 and 1986, respectively, Walnut and ELCOA have offered, through Welco, unsecured, corporate debentures to the investing public. Walnut and ELCOA prospectuses contained disclosures regarding significant investment risks associated with their debentures, including, among other things: (i) investor returns have in the past and would in the future be paid from the funds of new investors; (ii) income from historical revenue sources will be insufficient to service the existing debt; (iii) the majority of proceeds from the sale of new securities have been used to repay previous investors; (iv) auditors have opined that the companies may not continue as going concerns; and (v) bankruptcy could be imminent if the companies do not raise sufficient funds from the offering or if the roll-overs of maturing debentures were less than anticipated. On August 8, 1997, Walnut and ELCOA both filed for bankruptcy in the Eastern District of Pennsylvania.

5.From 1989 through April 1997, McGarry sold over $2 million of ELCOA's securities to approximately 100 of his customers. McGarry, who received commissions totaling approximately $134,000 from Welco for his sales, sold ELCOA securities to his customers without the approval of and outside of the control of the broker-dealer with which he was employed as a registered representative. Instead, McGarry placed his ELCOA trades through Welco, which opened and maintained the accounts of these customers. As part of his sales efforts, McGarry engaged in a pattern of fraudulent conduct involving misrepresentations and omissions of material facts and recommendations of unsuitable investments.

6.McGarry misrepresented and failed to disclose material facts to his customers concerning the investment risk associated with ELCOA securities, including the financial condition of the company. Contrary to the disclosures in the prospectus, McGarry told his customers that ELCOA's securities were a safe investment entailing low investment risk and that ELCOA was a sound and stable company. In other instances, McGarry failed to disclose the magnitude of the risks associated with this investment. These misrepresentations and omissions were exacerbated by his failure to provide any prospectus to many of his customers. Given the clear disclosures in the prospectus, McGarry either knew or was reckless in not knowing that these statements and omissions were materially misleading to his customers.

7.McGarry also knowingly or recklessly failed to disclose to investors material information to the effect that ELCOA securities were not registered in the state of Pennsylvania because ELCOA did not meet the state's minimum financial requirements for issuers of publicly traded securities. McGarry knew as of November 6, 1996, that ELCOA securities could no longer be offered to Pennsylvania residents. However, from November 9, 1996 through August 1997, McGarry continued to sell over $160,000 of these securities to a total of sixteen of his Pennsylvania customers without disclosing this registration and financial information.

8.As part of his sales efforts to these sixteen Pennsylvania residents, McGarry falsified the addresses on their customer account forms to create the appearance that these customers were residents of New York. Specifically, McGarry changed the customers' actual addresses in Pennsylvania to a post office box, which he controlled, in Jamestown, New York. McGarry made these alterations to circumvent Pennsylvania's registration requirements. Welco then maintained these new account forms in the ordinary course of business.

9.In addition to the conduct described above, McGarry recommended the purchase of ELCOA securities to customers whom he knew or was reckless in not knowing were inexperienced, conservative investors of modest means who were seeking secure, fixed-rate investments. Given, among other things, the clear disclosures in the ELCOA prospectuses regarding the high degree of investment risk, McGarry either knew or was reckless in not knowing that ELCOA securities were wholly unsuitable investments for such customers.

10.Based on the above-described conduct, McGarry:

a.Willfully violated and/or committed or caused violations of Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, in that he, in the offer or sale of securities, or in connection with the purchase or sale of securities, by the use of the means or instruments or instrumentalities of transportation or communication in interstate commerce or by use of the mails, directly or indirectly, employed devices, schemes or artifices to defraud; obtained money or property by means of, or otherwise 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 circumstance under which they were made, not misleading; or engaged in acts, transactions, practices or courses of business which operated or would operate as a fraud or deceit upon any person, as described in Sections II.6, II.7. and II.9;

b.Willfully violated and/or committed or caused violations of Section 15(a)(1) of the Exchange Act in that he made use of the mails or the means or instrumentalities of interstate commerce to effect transactions in, or to induce or attempt to induce the purchase or sale of the securities described herein without being registered as, or associated with, a broker or dealer registered with the Commission pursuant to Section 15(b) of the Exchange Act, as described in Section II.5;

c.Willfully violated and/or committed or caused violations of Section 15(c)(1) of the Exchange Act and Rule 15c1-2 thereunder in that he, while acting as a broker or a dealer, by the use of the mails or of the means or instrumentalities of interstate commerce, effected transactions in, or induced or attempted to induce the purchase or sale of the securities described herein by means of manipulative, deceptive or other fraudulent devices or contrivances, including acts, practices or courses of business which operated or would operate as a fraud or deceit upon any person or 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, which statements or omissions were made with the knowledge or reasonable grounds to believe that they were untrue or misleading, as described in Sections II.6, II.7 and II.9; and

d.Willfully aided and abetted and/or caused Welco's violations of Section 17(a) of the Exchange Act and Rule 17a-3 thereunder by creating customer account forms containing false information, which were then maintained by Welco as part of its books and records required of broker-dealers, as described in Section II.8.

11.McGarry, who declared bankruptcy on November 14, 1997, has submitted a sworn financial statement and other evidence and has asserted his financial inability to pay a civil penalty or disgorgement plus prejudgment interest. The Commission has reviewed the sworn financial statement and other evidence provided by McGarry and has determined that McGarry does not have the financial ability to pay a civil penalty or disgorgement of approximately $134,000, plus prejudgment interest.

III.

On the basis of the foregoing, the Commission deems it appropriate and in the public interest to accept the Offer submitted by McGarry and impose the sanctions specified therein.

IT IS HEREBY ORDERED THAT McGarry be, and hereby is barred from association with any broker or dealer;

IT IS FURTHER ORDERED THAT McGarry shall cease and desist from committing or causing any violation and any future violation of Sections 17(a) of the Securities Act, Sections 10(b), 15(a)(1), 15(c)(1) and 17(a) of the Exchange Act and the Rules 10b-5, 15c1-2, and 17a-3 thereunder;

IT IS FURTHER ORDERED THAT McGarry shall pay disgorgement of $134,000, plus prejudgment interest, but that payment of such amount be waived based upon his demonstrated financial inability to pay; and

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 McGarry provided accurate and complete financial information at the time such representations were made; (2) determine the amount of civil penalty to be imposed against McGarry; and (3) seek any additional remedies against McGarry that the Commission would be authorized to impose in this proceeding if 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 was fraudulent, misleading, inaccurate or incomplete in any material respect, the amount of civil penalties to be imposed and whether additional remedies should be imposed. McGarry may not, by way of defense to 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 McGarry's Offer and are not binding on any other person or entity in this or any other proceeding.