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U.S. Securities and Exchange Commission

Before the

Investment Advisers Act of 1940
Release No. 2193 / November 19, 2003

Administrative Proceedings
File No. 3-11340

In the Matter of






The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest that public administrative proceedings be, and hereby are, instituted pursuant to Section 203(f) of the Investment Advisers Act of 1940 ("Advisers Act") against Sherman S. Smith ("Respondent").


In anticipation of the institution of these proceedings, Respondent has submitted an Offer of Settlement (the "Offer") which the Commission has determined to accept. Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission, or to which the Commission is a party, and without admitting or denying the findings herein, except as to the Commission's jurisdiction over him and the subject matter of these proceedings, and the findings contained in Section III.2 and III.4 below, which are admitted, Respondent consents to the entry of this Order Instituting Administrative Proceedings Pursuant to Section 203(f) of the Investment Advisers Act of 1940, Making Findings, and Imposing Remedial Sanctions ("Order"), as set forth below.


On the basis of this Order and Respondent's Offer, the Commission finds that

  1. Smith was the founder and chairman of Donne Corporation ("Donne"), a company that provided consulting services to churches in the areas of finances, development and construction. Neither Donne nor its securities offerings have ever been registered with the Commission. From approximately January 1998 through January 2001, Smith was registered with the State of California as an investment adviser. Smith, 56 years old, is a resident of Napa, California.
  2. On October 22, 2003, a final judgment was entered by consent against Smith, permanently enjoining him from future violations of Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and Sections 206(1) and 206(2) of the Advisers Act, in the civil action entitled Securities and Exchange Commission v. Donne Corporation, et al., Civil Action Number C 02-04238 SC, in the United States District Court for the Northern District of California.
  3. The Commission's complaint alleges that, in connection with the sale of Donne stock, Smith misused and misappropriated investor funds, falsely stated to investors that their funds were invested in Donne, sent out false account statements indicating that investors funds were fully invested and earning returns from Donne, and otherwise engaged in a variety of conduct which operated as a fraud and deceit on investors. The Commission's complaint further alleges that by using funds from Donne stock sales to pay investment returns, Smith operated a Ponzi-like investment scheme. The Commission's complaint further alleges that the Donne stock offerings were not registered with the Commission.
  4. On June 7, 2003, Smith pled guilty to one count of securities fraud in violation of Title 15 United States Code, Section 78 before the United States District Court for the Northern District of California, in United States v. Sherman S. Smith, Crim. Information No. 02-0265.
  5. The count of the criminal information to which Smith pled guilty alleged, inter alia, that Smith: (1) employed a device, scheme, or artifice to defraud; (2) acted in connection with the purchase or sale of stock; (3) used the mail, telephone or other means of interstate commerce in connection with these acts; (4) acted for the purpose of defrauding buyers or sellers of securities; and (5) understood that to defraud someone is to make a statement or representation which is untrue relating to something important to the purchase or sale of stock.


In view of the foregoing, the Commission deems it appropriate and in the public interest to impose the sanctions specified in Respondent Smith's Offer.

Accordingly, it is hereby ORDERED:

Pursuant to Section 203(f) of the Advisers Act, that Respondent Smith be, and hereby is barred from association with any investment adviser.

Any reapplication for association by the Respondent will be subject to the applicable laws and regulations governing the reentry process, and reentry may be conditioned upon a number of factors, including, but not limited to, the satisfaction of any or all of the following: (a) any disgorgement ordered against the Respondent, whether or not the Commission has fully or partially waived payment of such disgorgement; (b) any arbitration award related to the conduct that served as the basis for the Commission order; (c) any self-regulatory organization arbitration award to a customer, whether or not related to the conduct that served as the basis for the Commission order; and (d) any restitution order by a self-regulatory organization, whether or not related to the conduct that served as the basis for the Commission order.

For the Commission, by its Secretary, pursuant to delegated authority.

Jonathan G. Katz


Modified: 11/19/2003