UNITED STATES OF AMERICA SECURITIES AND EXCHANGE COMMISSION SECURITIES ACT OF 1933 Release No 7592 / October 13, 1998 SECURITIES EXCHANGE ACT OF 1934 Release No 40544 / October 13, 1998 INVESTMENT ADVISERS ACT Release No. 1770 / October 13, 1998 ADMINISTRATIVE PROCEEDING File No. 3-9572 ____________________________________ : In the Matter of : ORDER MAKING FINDINGS : IMPOSING REMEDIAL SANCTIONS THOMAS B. O'CONNELL, : AND A CEASE-AND-DESIST ORDER Respondent. : AGAINST THOMAS B. O'CONNELL : I. In these proceedings instituted pursuant to Section 8A of the Securities Act of 1933 ("Securities Act"), Section 21C of the Securities Exchange Act of 1934 ("Exchange Act"), and Sections 203(f), and 203(k) of the Investment Advisers Act of 1940 ("Advisers Act"), Respondent Thomas B. O'Connell ("O'Connell") has submitted an Offer of Settlement ("Offer") which the Securities and Exchange Commission has determined to accept. II. Solely for the purpose of these proceedings and any other proceeding brought by or on behalf of the Commission or in which the Commission is a party, O'Connell, admitting the findings contained herein, consents to the entry of the findings and the imposition of the remedial sanctions and cease-and-desist order set forth below III. On the basis of the Order Instituting Proceedings against O'Connell, and the Offer submitted by O'Connell, the Commission finds that: A. Respondent O'Connell is 67 years old and, until recently, resided in both Quechee, Vermont and Scottsdale, Arizona. During the period from the 1960s through 1981, O'Connell was associated with certain broker-dealers registered with the Commission. In 1981 and 1982, the New York Stock Exchange, Inc. ("NYSE") and the National Association of Securities Dealers, Inc. ("NASD"), respectively, barred O'Connell from associating with any member firm. During the period from 1987 through 1995, O'Connell served as the general partner for the following two limited partnerships: O'Connell & Associates ("OCA") and O'Connell Partnership Limited ("OPL"). On June 28, 1996, O'Connell pleaded guilty in the United States District Court for the District of Vermont to mail fraud and tax fraud violations in connection with OCA and OPL. On July 17, 1997, O'Connell was sentenced for these crimes to 52 months in prison and ordered to pay $11 million in restitution. B. Other Relevant Entities and Persons 1. OCA was formed in 1987 under the laws of the State of Vermont. O'Connell formed OCA for the purpose of trading securities and financial futures contracts on behalf of its limited partners. 2. OPL was formed in 1990 under the laws of the State of Florida. O'Connell formed OPL for the purpose of trading securities and financial futures contracts on behalf of its limited partners. C. Facts Background 1. During the period from 1988 through 1995, O'Connell sold limited partnership interests in OCA and OPL (the "Partnership Interests") to the public. During this time period, OCA and OPL held themselves out as being engaged in the business of investing in securities and financial futures contracts, as determined by O'Connell, who served as general partner. O'Connell solicited sales of Partnership Interests by: (a) causing prospective investors to be solicited over the telephone; (b) publishing advertisements in certain publications; and (c) drafting written memoranda concerning OCA and OPL that were distributed to prospective investors and existing limited partners. 2. During the period from 1988 through 1995, O'Connell sold approximately $14 million in Partnership Interests to approximately 60 persons. These persons resided in Vermont, Florida, and other states. 3. Under the terms of the OCA and OPL partnership agreements, all monies invested by limited partners in OCA and OPL were to be pooled together to create common enterprises and all profits, if any, in OCA and OPL would come solely from the efforts of O'Connell. 4. The Partnership Interests were "securities," as that term is defined in the Securities Act, the Exchange Act, and the Advisers Act. O'Connell's Fraudulent Sales Of Unregistered Securities 5. The OCA Partnership Interests were not registered with the Commission. The OCA Partnership Interests were not exempt from the registration requirements of the Securities Act. 6. In offering and selling the Partnership Interests, O'Connell represented to prospective purchasers of the Partnership Interests that: (a) all monies invested in OCA and OPL would be used by O'Connell to invest in various securities and futures contracts for OCA and OPL; and (b) O'Connell would receive a management fee solely from net operating profits received by OCA and OPL. In addition, beginning at least in 1990, O'Connell made representations concerning the financial performance of OCA and OPL. Specifically, O'Connell represented to prospective investors and existing limited partners that OCA and OPL had achieved the following percentage annual profits: 1989 29.5% 1990 46.0% 1991 41.6% 1992 30.4% 1993 30.0% 1994 26.9% 7. O'Connell's representations to prospective investors in OCA and OPL were materially false and misleading. Instead of using investors' monies to trade securities or financial futures contracts, O'Connell withdrew nearly all of those funds from the partnerships and used those funds to pay his personal expenses or to make payments to existing investors. OCA and OPL lost money on securities and financial futures trading every year after 1988. 8. In addition to his misrepresentations concerning OCA and OPL, O'Connell failed to disclose to prospective investors the following material facts: (a) that O'Connell was barred from association with any member of the NYSE or the NASD as a result of an unauthorized transfer of funds from a customer account while O'Connell was a securities broker; and (b) that, in 1988 and 1989, the States of Vermont and New Hampshire issued orders, based upon O'Connell's sales of Partnership Interests, prohibiting O'Connell from committing further violations of the laws of those states concerning sale of unregistered securities. O'Connell's Deceptions In The Management of the Partnerships 9. Throughout the period from 1989 through 1995, O'Connell acted as an investment adviser to OCA and OPL. O'Connell mailed monthly and quarterly reports to the limited partners in which he purported to describe the investment performance of OCA and OPL. In addition, these reports contained general commentary by O'Connell on the financial markets. Under the partnership agreements, O'Connell was entitled to receive a management fee for his services based on the net trading profits of the partnerships. 10. In the course of serving as an investment adviser, O'Connell misrepresented the financial performance of OCA and OPL to the limited partners. O'Connell did not disclose to the limited partners the fact that he was using partnership funds to pay his personal expenses and make payments to certain limited partners. During the period from 1989 through 1995, O'Connell never disclosed to the limited partners the trading losses suffered by OCA and OPL. 11. O'Connell failed to deposit client funds in accounts separate from the adviser's funds or arrange for annual audits of those accounts. Instead, O'Connell commingled his own funds with monies belonging to OCA and OPL. While O'Connell arranged for several audits of OCA's financial statements by an independent accounting firm, those audits were conducted with notice to O'Connell. In addition, O'Connell deceived the auditors from the accounting firm in connection with the audits of OCA. D. Conclusions 12. As set forth above, O'Connell made false or misleading statements of material fact in offering and selling Partnership Interest to limited partners in OCA and OPL. Accordingly, O'Connell willfully violated Sections 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5. 13. As further set forth above, O'Connell, directly and indirectly, offered and sold OCA Partnership Interests when no registration statement was filed or in effect with respect to those securities. Accordingly, O'Connell willfully violated Section 5 of the Securities Act. 14. As further set forth above, O'Connell: (a) misrepresented the investment performance of OCA and OPL to the limited partners; (b) failed to disclose the actual disposition of funds placed under O'Connell's management; (c) failed to disclose the trading losses suffered by OCA and OPL; (d) failed to arrange for verification of client funds and securities by examination at least annually by an independent public accountant at a time chosen by such accountant without prior notice to O'Connell. Accordingly, O'Connell willfully violated Section 206(1), 206(2), and 206(4) of the Advisers Act and Rule 206(4)-2. 15. As further set forth above, O'Connell has been criminally convicted of felonies that involve misappropriation of funds and violation of 18 U.S.C. 1341. IV. Based upon the foregoing, the Commission deems it appropriate to impose the sanctions specified by Respondent in his offer. Accordingly, IT IS HEREBY ORDERED that: i) O'Connell shall, effective immediately, cease and desist from committing or causing any violation, and from committing or causing any future violation, of Sections 5 and 17(a) of the Securities Act; Section 10(b) of the Exchange Act and Rule 10b-5; and Sections 206(1), 206(2), and 206(4) of the Advisers Act and Rule 206(4)-2. (ii) pursuant to Section 203(f) of the Advisers Act and effective immediately, O'Connell is barred from association with any broker, dealer, investment company, investment adviser or municipal securities dealer. By the Commission. Jonathan G. Katz Secretary