==========================================START OF PAGE 1====== UNITED STATES OF AMERICA Before the SECURITIES AND EXCHANGE COMMISSION SECURITIES EXCHANGE ACT OF 1934 RELEASE NO. 38500 / April 14, 1997 AMINISTRATIVE PROCEEDING File No. 3-9103 --------------------------------- : In the Matter of : : ORDER MAKING FINDINGS H. RALPH SYLVESTER, DONALD : AND IMPOSING REMEDIAL R. KRUEGER and JOHN C. HAWVER, : SANCTIONS AGAINST : H. RALPH SYLVESTER AND Respondents. : DONALD R. KRUEGER : --------------------------------- I. In this public administrative proceeding ordered pursuant to Sections 15(b)(6) and 19(h) of the Securities Exchange Act of 1934 ("Exchange Act"), Respondents H. Ralph Sylvester ("Sylvester") and Donald R. Krueger ("Krueger") have submitted Offers of Settlement, which the Commission has determined to accept.1 Solely for the purpose of these proceedings and any other proceedings 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, except for those facts which are set forth in paragraphs II.1., II.2. and III.3. below, which they admit, Sylvester and Krueger consent to the entry of this Order. II. On the basis of this Order, the Order Instituting Public Administrative Proceedings in this matter and the Offers of Settlement submitted by Sylvester and Krueger, the Commission finds2 that: 1 The Order Instituting Proceedings in this matter was issued on September 26, 1996. Exchange Act Release No. 37733 (Sept. 26, 1996). 2 The findings herein are made pursuant to Sylvester's and Krueger's offers and are not binding on any other person or entity named as a respondent in this or any other proceeding. 1. On September 28, 1994, the Commission filed an action against Sylvester, Krueger and others captioned Securities and Exchange Commission v. Michael J. Randy, et al, Civil Action No. 94 C 5902, in the United States District Court for the Northern District of Illinois, Eastern Division. On August 7, 1996, Final Judgments of Permanent Injunction were entered against Sylvester and Krueger, by default, permanently enjoining them from, directly or indirectly, violating Sections 5(a), 5(c), 17(a)(1), 17(a)(2) and 17(a)(3) of the Securities Act of 1933 ("Securities Act"), Sections 10(b) and 15(a)(1) of the Exchange Act and Rule 10b-5 promulgated thereunder. 2. From August 1979 through April 1992, Krueger was a registered representative associated with various broker-dealers, most recently with Investors Choice Securities. 3. From at least February 1992 through December 1992, Sylvester acted as a broker-dealer within the meaning of Section 15(b) of the Exchange Act in connection with the sale of Canadian Trade Bank, Ltd. certificates of deposit ("CTB CDs"). 4.a. From at least February 1992 to December 1992, Sylvester 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 light of the circumstances under which they were made, not misleading; or engaged in transactions, practices, or courses of business which operated or would operate as a fraud or deceit upon the purchaser. As part of this conduct, Sylvester and his agents, in the offer and sale of CTB CDs, misrepresented material facts and omitted to state material facts to investors concerning the legitimacy of CTB, the safety of the investment and the use of proceeds. Specifically, Sylvester misrepresented to investors that the CDs were guaranteed to pay 12-14% annual interest; the CDs were safe investments and were fully insured by independent insurance companies, including Lloyds of London, Polaris, and Zurich American, that maintained $150 in reserve for every $100 on deposit; CTB maintained $100 in reserve for every $100 on deposit; CTB was audited five times per year, one being a surprise audit, by "a Government Banking Commission;" CTB used investor funds to purchase "only major national government bonds, such as U.S., German, British, Japanese, Australian, and other major nations of short duration [sic] and short term bonds of major AA rated or better corporations;" and investors in the CDs included foreign royalty, governments and other banks. In addition to these misrepresentations, Sylvester and his agents ==========================================START OF PAGE 2====== failed to disclose that CTB was not a bank and was not legally licensed as a bank by any governmental agency and that an individual performed substantially all activities relating to CTB out of his offices in Illinois. Sylvester sold over $1.7 million worth of the CTB CDs to at least 74 investors from which he personally received over $24,000 in commissions. b. From at least September 1992 to December 1992, Krueger 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 light of the circumstances under which they were made, not misleading; or engaged in transactions, practices, or courses of business which operated or would operate as a fraud or deceit upon the purchaser. As part of this conduct, Krueger and his agents, in the offer and sale of CTB CDs, misrepresented material facts and omitted to state material facts to investors concerning the legitimacy of CTB, the safety of the investment and the use of proceeds. Specifically, Krueger misrepresented to investors that the CDs were guaranteed to pay 12-14% annual interest; the CDs were safe investments and were fully insured by independent insurance companies, including Lloyds of London, Polaris, and Zurich American, that maintained $150 in reserve for every $100 on deposit; CTB maintained $100 in reserve for every $100 on deposit; CTB was audited five times per year, one being a surprise audit, by "a Government Banking Commission;" CTB used investor funds to purchase "only major national government bonds, such as U.S., German, British, Japanese, Australian, and other major nations of short duration [sic] and short term bonds of major AA rated or better corporations;" investors in the CDs included foreign royalty, governments and other banks; and a Canadian trust company would invest depositor funds outside of the United States by purchasing mortgages. In addition to these misrepresentations, Krueger and his agents failed to disclose that CTB was not a bank and was not legally licensed as a bank by any governmental agency and that an individual performed substantially all activities relating to CTB out of his offices in Illinois. Krueger sold over $530,000 worth of the CTB CDs to at least 27 investors from which he personally received over $11,000 in commissions. 5.a. From at least February 1992 to December 1992, Sylvester willfully violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder in that, directly or indirectly, by the use of the means or instrumentalities of interstate commerce, or of the mails, in connection with the purchase or sale of ==========================================START OF PAGE 3====== 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 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 this conduct, Sylvester engaged in the activities described in paragraph II.4.a. above. b. From at least September 1992 to December 1992, Krueger willfully violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder in that, directly or indirectly, by the 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 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 this conduct, Krueger engaged in the activities described in paragraph II.4.b. above. 6.a. From at least February 1992 to December 1992, Sylvester willfully violated Section 15(a) of the Exchange Act in that he made use of the mails or means or instrumentalities of interstate commerce to effect transactions in or induced the purchase of securities without being registered as a broker or dealer in accordance with Section 15(b) of the Exchange Act. As part of this conduct, Sylvester effected transactions in and induced the purchase of CTB CDs without being registered as a broker or dealer in accordance with Section 15(b) of the Exchange Act. b. From at least September 1992 to December 1992, Krueger willfully violated Section 15(a) of the Exchange Act in that he made use of the mails or means or instrumentalities of interstate commerce to effect transactions in or induced the purchase of securities without being registered as a broker or dealer in accordance with Section 15(b) of the Exchange Act. As part of this conduct, Krueger effected transactions in and induced the purchase of CTB CDs without being registered as a broker or dealer in accordance with Section 15(b) of the Exchange Act. 7.a. From at least February 1992 to December 1992, Sylvester willfully violated Section 5(a) of the Securities Act in that, directly or indirectly, he made use of the means or ==========================================START OF PAGE 4====== instruments of transportation or communication in interstate commerce or of the mails, through the use or medium of a prospectus or otherwise, to sell securities or carried or caused to be carried through the mails or interstate commerce, by the means or instruments of transportation, securities, for the purpose of sale or delivery after sale, without a registration statement being in effect with respect to such securities or while no exemption from registration was applicable. As part of this conduct, Sylvester sold CTB CDs to investors without a registration statement being in effect with respect to such securities and while no exemption from registration was applicable. b. From at least September 1992 to December 1992, Krueger willfully violated Section 5(a) of the Securities Act in that, directly or indirectly, he made use of the means or instruments of transportation or communication in interstate commerce or of the mails, through the use or medium of a prospectus or otherwise, to sell securities or carried or caused to be carried through the mails or interstate commerce, by the means or instruments of transportation, securities, for the purpose of sale or delivery after sale, without a registration statement being in effect with respect to such securities or while no exemption from registration was applicable. As part of this conduct, Krueger sold CTB CDs to investors without a registration statement being in effect with respect to such securities and while no exemption from registration was applicable. 8.a. From at least February 1992 to December 1992, Sylvester willfully violated Section 5(c) of the Securities Act in that, directly or indirectly, he made use of the means or instruments of transportation or communication in interstate commerce or of the mails to offer to sell, through the use of a prospectus or otherwise, securities, without a registration statement being filed with respect to such securities and while no exemption from registration was applicable. As part of this conduct, Sylvester offered to sell CTB CDs without a registration statement being filed with respect to such securities and while no exemption from registration was applicable. b. From at least September 1992 to December 1992, Krueger willfully violated Section 5(c) of the Securities Act in that, directly or indirectly, he made use of the means or instruments of transportation or communication in interstate commerce or of the mails to offer to sell, through the use of a prospectus or otherwise, securities, without a registration ==========================================START OF PAGE 5====== statement being filed with respect to such securities and while no exemption from registration was applicable. As part of this conduct, Krueger offered to sell CTB CDs without a registration statement being filed with respect to such securities and while no exemption from registration was applicable. III. In view of the foregoing, the Commission finds that it is in the public interest to impose the sanction specified in the Offer of Settlement. Accordingly, IT IS HEREBY ORDERED THAT: Respondents Sylvester and Krueger be, and hereby are, barred from association with any broker, dealer, investment company, investment adviser, or municipal securities dealer. For the Commission, by its Secretary, pursuant to delegated authority, Jonathan G. Katz Secretary ==========================================START OF PAGE 6======