UNITED STATES OF AMERICA Before the SECURITIES AND EXCHANGE COMMISSION SECURITIES ACT OF 1933 Release No. 7348 / September 30, 1996 SECURITIES EXCHANGE ACT OF 1934 Release No. 37751 / September 30, 1996 ADMINISTRATIVE PROCEEDING File No. 3-9121 ______________________________ : In the Matter of : ORDER INSTITUTING PROCEEDINGS : PURSUANT TO SECTION 8A OF THE CURTIS LYNCH and DAVID : SECURITIES ACT OF 1933 AND HOLLANDER, : SECTION 21C OF THE SECURITIES : EXCHANGE ACT OF 1934, AND Respondents. : CEASE AND DESIST ORDER ______________________________: I. The Commission deems it appropriate and in the public interest that public administrative proceedings be instituted against Curtis Lynch ("Lynch") and David Hollander ("Hollander") pursuant to Section 8A of the Securities Act of 1933 ("Securities Act") and Section 21C of the Securities Exchange Act of 1934 ("Exchange Act"). II. In anticipation of the institution of these administrative proceedings, Lynch and Hollander have submitted Offers of Settlement 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, Lynch and Hollander consent to the entry of the findings, and imposition of the remedial sanctions, set forth below. ==========================================START OF PAGE 2====== III. On the basis of this Order and Respondents' Offers of Settlement, the Commission makes the following findings:-[1]- A. FACTS 1. Respondents Curtis Lynch resides in New York, New York, and is a freelance business consultant. David Hollander resides in Brooklyn, New York, and owns a small packaging business. 2. Summary This matter involves the fraudulent offer and sale of securities in the form of guaranteed insurance contracts ("GICs") purportedly issued and guaranteed by a group of European insurance and reinsurance companies. From December 1992 until at least April 1994, M.T.L. International Finance, Inc., Equity Action Partners, Inc., John K. Robinson, Leon Howard and Harry Walker (collectively, "the promoters") offered to investors an investment program involving the purchase and sale of the GICs. In approximately July 1993, the promoters enlisted the aid of a small registered broker-dealer in the offering. The broker- dealer, along with Lynch and Hollander, participated in creating a false and misleading offering memorandum for the GICs, which was provided to prospective investors (the "GIC Memo"). Neither Lynch nor Hollander conducted any due diligence to ascertain whether the European companies named in the GIC Memo in fact issued or guaranteed the GICs. Moreover, Lynch and Hollander, neither of whom was registered as a broker-dealer or an associated person of the broker-dealer firm, solicited investors for the GICs from the broker-dealer's premises. 3. Facts a. Background From at least December 1992 until April 1994, the promoters, a group of individuals and corporate entities based in California, Missouri and New Jersey, offered to investors securities in the form of GICs purportedly issued by a consortium ---------FOOTNOTES---------- -[1]- The findings herein are made pursuant to the Offers of Settlement of Lynch and Hollander and are not binding on any other person or entity named as a respondent in this or any other proceeding. ==========================================START OF PAGE 3====== of ten European insurance and reinsurance companies. The promoters falsely claimed to be creating an investment pool of $10 million, and promised prospective investors returns of 2.3% per day for investing in the GIC program. The promoters raised at least $720,000 from investors pursuant to this scheme. The promoters stressed the secret nature of the GICs, but assured prospective investors that the investment was risk-free and that their funds would be held in a "secured depository account" at a major New York bank throughout the term of their investment. In fact, the promoters had no business relationship with the European insurance and reinsurance companies with which they purported to deal, and the investors' money was misappropriated by the promoters. b. Respondents' Involvement Respondents became involved in the GIC scheme in the summer of 1993, when Lynch, working as a business consultant, undertook to obtain financing for a business venture run by Hollander. Lynch and Hollander attempted to raise money by investing $70,000 which Hollander had obtained from another individual in the non- existent GICs. One of the promoters subsequently told Hollander that his investment had been lost, but that it would later be refunded. Despite the loss of Hollander's investment, Lynch and Hollander joined the promoters in soliciting investors for the GIC scheme. Lynch introduced the promoters to the principal of a small broker-dealer firm (the "broker-dealer") at which he maintained an account. The principal of the broker-dealer agreed to assist the promoters in setting up bank accounts which would receive payment for the GICs from investors. However, the principal was unable to locate any bank which would agree to the arrangements suggested by the promoters, which involved releasing investor funds to the promoters prior to actual receipt and verification of the GICs. Lynch and Hollander began using the offices of the broker- dealer to solicit investors for the GICs. Neither Lynch nor Hollander was employed by the broker-dealer or registered as a broker-dealer or associated person of a broker-dealer. In order to solicit investors for the GICs, Hollander, Lynch and the principal of the broker-dealer prepared the GIC Memo, which purported to describe the GIC investment. As the promoters introduced prospective investors to them, Lynch and Hollander participated in offering the GIC investment opportunity to prospective investors by, among other things, providing the GIC Memo to them. The GIC Memo was materially false and misleading in several respects. First, it falsely identified certain European insurance and reinsurance companies which it represented to be ==========================================START OF PAGE 4====== the issuers and guarantors of the GICs. No one at the broker- dealer, including Lynch and Hollander, performed any type of due diligence inquiry to determine whether the insurance and reinsurance companies actually issued or guaranteed the GICs or whether the promoters had any direct or indirect rights to offer the GICS to investors on behalf of those companies. The GIC Memo also stated that "[the broker-dealer] has European Guaranteed Insurance contracts available for private placement...." The broker-dealer did not, in fact, have any GICs available for sale. The GIC Memo further stated that the broker- dealer was providing services relating to the GICs through an identified affiliate, and that the affiliate specialized in "Euro-GICs" and "synthetic GICs." Both statements were false. As part of the scheme to convince one investor that his principal investment would be safe, one of the promoters directed the investor to open an account at the broker-dealer and to deposit his money into the account. On or about December 6, 1993, the investor hand delivered a check for $500,000 to the broker-dealer's office. The investor met Lynch, with whom he had previously discussed the GIC investments, who arranged for the investor's account to be opened. Lynch falsely described himself to the investor as the "chief bond trader" at the broker-dealer, and told the investor that he had already conducted several large GIC transactions. This investor's $500,000 was misappropriated by the promoters. In November and December 1993, one of the promoters gave Hollander and Lynch $12,500 and $14,810, respectively, as compensation for their work in soliciting investors for the GICs. B. VIOLATIONS 1. Fraud Hollander and Lynch both helped to prepare the GIC Memo and knew that material statements contained in the memorandum were false. They were aware that Hollander's prior investment with the same promoters had been lost, yet solicited investors to do business with the same promoters. They were prohibited from contacting the purported issuers of the GICs to verify the bona fides of the GICs, but closed their eyes to this obvious red flag. Moreover, they falsely asserted that the broker-dealer or its affiliate had experience relating to the Euro-GICs. In participating in the offering under these circumstances, Hollander and Lynch participated in a fraudulent offering of securities in violation of Section 17(a) of the Securities Act. In addition, Lynch participated in a fraudulent transaction through which an investor lost $500,000, and thus violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. ==========================================START OF PAGE 5====== 2. Failure to register Lynch and Hollander acted as brokers in soliciting investors for the GICs. Although they worked in conjunction with the broker-dealer, they were not registered as broker-dealers or as associated persons. Section 15(a) of the Exchange Act makes it unlawful for a broker to "effect any transactions in, or to induce or attempt to induce the purchase of sale of, any security" without being registered with the Commission. Lynch and Hollander were each paid for their efforts in marketing the GICs, and expected to get additional money from the transactions they were attempting to consummate. They were engaged in the business of effecting transactions in securities, and were thus in violation of Section 15(a) of the Exchange Act. IV. FINDINGS Based on the above, the Commission finds that: A. Curtis Lynch has violated Section 17(a) of the Securities Act, Sections 10(b) and 15(a) of the Exchange Act, and Rule 10b-5 thereunder; and B. David Hollander has violated Section 17(a) of the Securities Act and Section 15(a) of the Exchange Act. V. ORDER Accordingly, IT IS HEREBY ORDERED, pursuant to Section 8A of the Securities Act and Section 21C of the Exchange Act that: A. Curtis Lynch permanently cease and desist from committing or causing any violation, and from committing or causing any future violation, of Section 17(a) of the Securities Act, Sections 10(b) and 15(a) of the Exchange Act, and Rule 10b-5 thereunder; B. David Hollander permanently cease and desist from committing or causing any violation, and from committing or causing any future violation, of Section 17(a) of the Securities Act and Section 15(a) of the Exchange Act; and C. Curtis Lynch and David Hollander shall pay disgorgement in the amounts of $14,810 and $12,500, respectively, representing each of their gains from the conduct described herein, plus pre- judgment interest thereon in the amounts of $3,004.24 and $2,535.65, respectively. Based upon their sworn representations in their Statements of Financial Condition dated February 20, 1996, and February 9, 1996, and submitted to the Commission, ==========================================START OF PAGE 6====== payment of the disgorgement and pre-judgment interest thereon is waived. This waiver is contingent upon the accuracy and completeness of their Statements of Financial Condition. If at any time following the entry of this Order the Commission obtains information indicating that either Respondent's representations to the Commission concerning his assets, income, liabilities, or net worth were fraudulent, misleading, inaccurate or incomplete in any material respect as of the time such representations were made, the staff of the Commission may, at its sole discretion and without prior notice to the Respondent, petition the Commission for an order requiring that Respondent pay disgorgement and pre- judgment and post-judgment interest thereon. In connection with any such petition, the only issue shall be whether the financial information provided was fraudulent, misleading, inaccurate or incomplete in any material respect as of the time such representations were made. Neither Respondent may, by way of defense to such petition, challenge the validity of this Order or his Offer of Settlement, contest the findings in this Order, the amount of disgorgement and interest, or assert that disgorgement should not be ordered. By the Commission. Jonathan G. Katz Secretary