==========================================START OF PAGE 1====== UNITED STATES OF AMERICA Before the SECURITIES AND EXCHANGE COMMISSION Securities Exchange Act of 1934 Release No. 37544 / August 8, 1996 Administrative Proceeding File No. 3-9057 ------------------------- : In the Matter of : : ORDER INSTITUTING PUBLIC : ADMINISTRATIVE PROCEEDINGS, FRANK DUCA : MAKING FINDINGS AND IMPOSING : REMEDIAL SANCTIONS : Respondent. : -------------------------: I. The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest that public administrative proceedings, pursuant to Sections 15(b) and 19(h) of the Securities Exchange Act of 1934 ("Exchange Act"), be instituted to determine whether Frank Duca ("Duca") willfully violated Section 17(a) of the Securities Act of 1933 ("Securities Act") and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder and whether an injunction was entered against him for violations of those provisions, and, if so, what remedial sanctions, if any, are appropriate in the public interest. II. In anticipation of the institution of these public administrative proceedings, Duca has submitted an Offer of Settlement ("Offer") which the Commission has determined to accept. Solely for the purpose of these proceedings, 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 in this Order Instituting Public Administrative Proceedings, Making Findings and Imposing Remedial Sanctions ("Order"), except as to the entry of the permanent injunction as set forth in Section IV.B., below, which he admits, Duca consents to the entry of this Order, and to the findings and the remedial sanctions set forth below. ==========================================START OF PAGE 2====== III. Accordingly, It IS ORDERED that public administrative proceedings, pursuant to Sections 15(b) and 19(h) of the Exchange Act, be, and hereby are, instituted against Duca. IV. On the basis of this Order and Duca's Offer, the Commission finds -[1]- that: A. Duca, 67, of East Meadow, New York, was the chief executive officer of Island Securities, Inc. ("Island"), a registered broker-dealer, from July 1989 to February 1995. B. On July 18, 1996, Duca was enjoined, on consent, by the United States District Court for the Eastern District of New York, from future violations of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. SEC v. Frank Duca and Jan Jusko, 95 Civ. 4475 (JS) (E.D.N.Y. 1995) C. The Complaint in the above action alleged, among other things, that, from May 1991 through September 1993, Duca misappropriated more than $535,000 from sixteen of his customers' accounts using an elaborate scheme involving, among other things, material misrepresentations, forged client authorizations, forged endorsement signatures on mutual fund redemption checks, and fabricated account statements. D. Duca willfully violated Section 17(a) of the Securities Act in that, in the offer or sale of securities, 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, he employed devices, schemes or artifices to defraud; obtained money or property by means of untrue statements of material facts 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 ---------FOOTNOTES---------- -[1]- The findings herein are made pursuant to Duca's Offer of Settlement and are not binding on any other person or entity named as a respondent in this or any other proceeding. ==========================================START OF PAGE 3====== operated or would operate as a fraud or deceit upon the purchaser. As part of that conduct: 1. From in or about May 1991 through September 1993, Duca misappropriated approximately $187,000 from at least five customers by inducing them to redeem shares in their mutual funds and to then invest the proceeds in what he claimed was a "tax- free government bond." Duca made various material misrepresentations to these customers in order to induce them to invest in the vehicle which he recommended, including, but not limited to stating: a) that he would be investing their money in a "tax-free government bond," when, in fact, Duca knew that he would not be investing his customers' money in any type of government bond; b) that the government bond was backed by insurance companies and was completely safe, when Duca knew that there were no insurance companies backing the alleged government bond; and c) that he was not affiliated with Allvest Corporation ("Allvest Corp."), the entity that was issuing the bond, when, in fact, Duca had formed Allvest Corp., was an officer of Allvest Corp., and was a signatory on its bank account. 2. From July 1991 through July 1992, Duca misappropriated a total of approximately $46,000 from at least two customers of Island who entrusted money to Duca for the purchase of mutual fund shares. Duca made various material misrepresentations to these customers, including, but not limited to: a) stating that he would deposit their funds into their Franklin New York Tax-Exempt mutual fund account. However, Duca deposited their checks into his own personal Franklin New York Tax-Exempt Money Fund and used their funds for his personal expenditures without their knowledge or consent; and b) sending these customers statements which he created and which falsely reflected that their money was invested in mutual funds. These statements also falsely indicated that ==========================================START OF PAGE 4====== the customers were accumulating interest and dividends on their investments, even though the customers no longer had such investments because their money had been misappropriated by Duca. 3. From in or about May 1991 through September 1993, Duca misappropriated approximately $249,000 from Island customers by liquidating their mutual fund positions without their authorization or knowledge and using the proceeds for his own personal expenditures. Duca accomplished this by implementing the following scheme: a) Duca first changed the mailing addresses on his customers' accounts to the Island address without their knowledge or consent. He then redeemed shares from the customers' mutual funds by forging customer signatures on the redemption forms; and b) after the redemption checks were mailed to the Island address, Duca endorsed the checks by forging the customers' signatures. Duca then deposited this money into his personal Franklin New York Tax-Exempt Money Fund and used the money for his own personal expenditures. E. Duca willfully violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder in that, directly or indirectly, by use of the means or instrumentalities of interstate commerce, or of the mails, in connection with the purchase or sale of securities, he employed devices, schemes or artifices to defraud; made untrue statements of material facts 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 operated or would operate as a fraud or deceit. As part of that conduct, he engaged in the conduct described in paragraph D above. V. In view of the foregoing, the Commission finds that it is in the public interest to impose the sanctions specified in the Offer. Accordingly it is ORDERED that Duca is barred from association with any broker, dealer, investment company, investment adviser or municipal securities dealer, effective immediately. ==========================================START OF PAGE 5====== By the Commission. Jonathan G. Katz Secretary ==========================================START OF PAGE 6====== SERVICE LIST Rule 141 of the Commission's Rules of Practice provides that the Secretary, or another duly authorized officer in the Commission, shall serve a copy of the order instituting proceedings on each person named as a party in the order or the legal agent of that person. The attached Order Instituting Public Administrative Proceedings, Making Findings and Imposing Remedial Sanctions in the above-captioned matter has been sent to the following parties and other persons entitled to notice: Jonathan G. Katz, Secretary Securities and Exchange Commission Mail Stop 6-9 450 Fifth Street, N.W. Washington, D.C. 20549 Securities and Exchange Commission Northeast Regional Office 7 World Trade Center 13th Floor New York, New York 10048 attn: Ellen N. Hersh, Assistant Regional Director Robert Blossner, Esq. 30 Vesey Street, Suite 900 New York, New York 10007 (Attorney for Frank Duca) Frank Duca 1267 Clark Street Elmont, New York 11003