G. Matthias Heinzelmann, III

LITIGATION RELEASE NO. 17491 / April 25, 2002

ACCOUNTING AND AUDITING ENFORCEMENT
Release No. 1549 / April 25, 2002

SECURITIES AND EXCHANGE COMMISSION V. G. MATTHIAS HEINZELMANN, III, Civil Action No. 4:02-CV-0403-A, United States District Court for the Northern District of Texas, Fort Worth Division.

On April 25, 2002, the Commission filed a civil injunctive action against G. Matthias Heinzelmann, of Fort Worth, Texas, alleging that he perpetrated a financial fraud while president and a director of Surety Capital Corporation ("Surety Capital"), a Fort Worth based reporting company whose sole asset is a wholly-owned subsidiary, Surety Bank, N.A., ("Surety Bank"). The Commission charges that from 1996 through September 1999, Heinzelmann engaged in an elaborate scheme to hide loan losses in Surety Bank's insurance premium finance ("IPF") division, which had a material impact on the parent company -- Surety Capital's - financial statements included in its Forms 10-K and 10-Q. Specifically, the Company overstated its pre-tax income by 7% in 1996, and understated its pre-tax losses by 16% in 1997 and 97% in 1998. Further, Surety Capital failed to file its Form 10-Q for the period ending September 30, 1999. Also, because of the misstatements, Surety Capital failed to make and keep books, records and accounts that, in reasonable detail, accurately and fairly reflected its transactions and dispositions of assets. Surety Capital also failed to maintain an adequate system of internal financial controls with respect to the accounting at Surety Bank over its IPF Division.

The Commission's complaint charges that Heinzelmann violated Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act") and Rules 10b-5, 13b2-1 and 13b2-2 thereunder, and aided and abetted violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder, and seeks a permanent injunction, officer and director bar and a third-tier civil money penalty.

The Commission simultaneously instituted settled administrative cease-and-desist proceedings against Surety Capital for violations of the reporting, internal controls and books and records provisions of the Exchange Act.