UNITED STATES OF AMERICA
Before the
SECURITIES AND EXCHANGE COMMISSION

Securities Exchange Act of 1934
Release No. 50983 / January 6, 2005

Admin. Proc. File No. 3-11605

The Securities and Exchange Commission (Commission) initiated this proceeding on August 25, 2004, pursuant to Section 15(b) of the Securities Exchange Act of 1934 (Exchange Act). Respondent Derrick N. McKinney (McKinney) filed his Answer on September 13, 2004.

On October 18, 2004, I issued an Order granting the Division of Enforcement (Division) leave to file a motion for summary disposition. The Order also required the Division to file its motion for summary disposition by November 19, 2004, and Respondents to file oppositions to that motion by December 23, 2004. On November 18, 2004, the Division filed its motion for summary disposition against McKinney and Respondent Rick R. Malizia (Malizia). This Office received a copy of Malizia's opposition from the Division on January 4, 2005. McKinney, however, has not filed or served an opposition with this Office, the Office of the Secretary, or the Division.

McKinney is in default for failing to respond to a dispositive motion within the time provided. 17 C.F.R. § 201.155(a)(2). Pursuant to Rule 155(a) of the Commission's Rules of Practice, 17 C.F.R. § 201.155(a), I find the following allegations in the OIP to be true as to McKinney.¹

McKinney, age forty-one, is a resident of Lewis Center, Ohio. He was employed as a registered representative at Merrill Lynch from November 1991 through August 1992. McKinney worked as a registered representative for Hamilton Investments and Linsco Private Ledger from February 1994 through December 1997, and as a registered representative for another brokerage firm named Mutual Services Corporation, a Florida-based broker-dealer, from January 1998 through December 31, 1999. During the relevant times, McKinney held Series 7 and 63 securities licenses.

On April 2, 2001, the Commission filed a Complaint in the United States District Court for the Southern District of Ohio, captioned SEC v. Thorn, Case No. 2:01-CV-290. On September 9, 2001, the Commission filed an Amended Complaint adding McKinney and Malizia, along with companies they controlled, as defendants to the lawsuit.

The Amended Complaint alleged that from February 1998 through April 2001, the defendants, including McKinney, raised approximately $75 million through the offer and sale of investments in a series of purported European bank trading programs. The programs offered and sold by McKinney exhibited many of the characteristics of the fraudulent prime bank schemes that the Commission, the Federal Reserve Board, and other regulators have warned do not exist. In selling the relevant investments, the defendants, including McKinney, told investors that the programs involved the trading of bank instruments issued by foreign banks; they promised investors returns ranging as high as 200 percent per month; they assured investors that the investments were risk free; and they warned investors that participation in the trading programs required total secrecy and confidentiality. In reality, the defendants, including McKinney, dissipated much of the investors' funds to pay personal and business expenses, to pay purported returns to earlier investors, and to pay undisclosed salaries and fees for themselves. The Amended Complaint alleged that McKinney thereby violated Section 17(a) of the Securities Act of 1933 (Securities Act) and Sections 10(b), 15(a), and 15(c)(1) of the Exchange Act and Rules 10b-5 and 15c1-2 thereunder.

On October 14, 2003, the court granted the Commission's motion for summary judgment and permanently enjoined McKinney from future violations of Section 17(a) of the Securities Act and Sections 10(b), 15(a), and 15(c)(1) of the Exchange Act and Rules 10b-5 and 15c1-2 thereunder. The court further ordered McKinney to disgorge $54,200, plus $16,499 in pre-judgment interest, and held him jointly and severally liable for $1,434,757 of disgorgement and $294,632 in pre-judgment interest imposed against his company, International Trading Partners, Ltd. (ITP), pursuant to a previous court order. The court also ordered McKinney to pay a civil penalty in an amount to be determined later.

In its October 14, 2003, Order, the court found that: (1) McKinney conceded that he received money from investors; (2) McKinney conceded that he had no personal knowledge about the source of the payments he received from another defendant; (3) McKinney conceded that he actually paid investors with other investors' money; (4) McKinney testified that he informed investors that there was little or no risk to their principal because another defendant would invest the money in exempt European securities, United States treasury securities, or overseas bonds; (5) McKinney and his company, ITP, used at least $1.4 million of money they received from investors for their own purposes; (6) McKinney made misrepresentations of material facts with regard to the investments and in connection with the offer, sale, or purchase thereof, and had violated the anti-fraud provisions of the federal securities laws; and (7) given McKinney's prior professional experience as a stockbroker and employment at a brokerage firm, there was no genuine issue of material fact that McKinney's conduct was at least reckless, so as to satisfy the scienter requirement.

Based on the foregoing, I find that it is appropriate in the public interest to bar McKinney from association with any broker or dealer.

Order

IT IS ORDERED, pursuant to Section 15(b) of the Securities Exchange Act of 1934, that Respondent Derrick N. McKinney is hereby barred from association with any broker or dealer.

Endnotes

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¹ The findings in this Default Order are not binding on Malizia, as to whom the proceeding remains open

See also the Order in this matter

http://www.sec.gov/litigation/admin/34-50983.htm