SIPC Expects to Advance $5 Million to Investors Hit by Theft At Ohio Brokerage Firm

Smooth Relocation of Over 27,000 Investor Accounts Underway



Apr 03, 2001, 01:00 ET from Securities Investor Protection Corporation

    WASHINGTON, April 3 /PRNewswire/ -- The Securities Investor Protection
 Corporation (SIPC), which maintains a special reserve fund authorized by
 Congress to protect investors at bankrupt brokerage firms, announced today
 that it expects to restore more than $5 million to more than 100 investors who
 had assets stolen at Donahue Securities in Cincinnati, Ohio.
     SIPC also said that it has worked with a trustee to facilitate the quick
 transfer to new brokerage firms of more than 27,000 other Donahue accounts,
 including participants in 403(b) retirement and pension plans set up by
 hospitals, universities and other non-profits in the state.  These clients,
 who were not jeopardized by the theft, would have faced disruption in their
 accounts if not for the intervention by SIPC and the trustee.  Nonetheless,
 SIPC urged all Donahue investors to file claims in order to make the most of
 the potential protection afforded their accounts.
     Stephen Donahue, former president of Donahue Securities, has been accused
 of misappropriating at least $6 million of his clients' funds by enticing them
 to invest in a phony tax-free mutual bond fund, which also was described to
 investors as a money market account fund.  In February 2001, the U.S.
 Securities and Exchange Commission (SEC) moved to take action against Donahue.
     Without admitting the allegations contained in the SEC complaint, Mr.
 Donahue voluntarily consented to the entry of a permanent injunction against
 him.  On March 6, 2001, a trustee was appointed pursuant to the Securities
 Investor Protection Act (SIPA) to control the liquidation of Donahue
 Securities, while at the same time a receiver was appointed to oversee Mr.
 Donahue's personal assets, as well as those of the assets of S.G. Donahue, an
 affiliated company.
     "The Donahue case is a textbook illustration of why Congress created SIPC
 to protect investors at troubled brokerage firms," said SIPC President Michael
 Don.  "While outright theft of this sort is uncommon, it is important for
 investors to know that SIPC is here as a safety net when they need us in these
 situations.  SIPC's mission also was met here in terms of making sure that the
 27,000 Donahue clients who were not victimized avoided having their assets
 tied up for months or longer in a bankrupt brokerage firm."
     Douglas Tripp, an attorney with the Cincinnati law firm of Frost Brown and
 Todd LLC is acting as trustee in the Donahue proceeding.  Tripp said:  "I am
 pleased to report that we successfully transferred nearly all of the broker-
 dealer customer accounts to SIPC member firms within the first few days
 following my appointment.  The claims process commenced on March 28, 2001 with
 a mailing of claims materials to all customers of record, and we expect that
 the individuals identified by the SEC as being victimized by Mr. Donahue in
 this case will eventually be made whole through that process.
     Tripp added:  "However, it is possible that there are other victims who
 have not yet been identified and because of this, we strongly recommend that
 all customers, including those individuals victimized by Mr. Donahue, who have
 not yet filed claims do so as soon as possible."
     SIPC President Michael Don said that the vast majority of the individuals
 who fell victim to Mr. Donahue's scheme were in Ohio.  A total of $6.2 million
 in losses have been identified so far; SIPC expects to advance more than $5
 million from its special reserve fund authorized by Congress towards
 satisfaction of claims of Donahue's customers.
     "I want to emphasize that all Donahue investors in this matter should file
 claims, even if they believe their accounts have been transferred without a
 hitch," SIPC's Don said.  "Under our rules, claims must be filed for errors to
 be corrected.  So, it's really the wisest course of action."
     The Donahue theft case is the most recent example of major use of the SIPC
 reserve fund.  SIPC reported on August 10, 2000 that it was acting as trustee
 on behalf of individual investors and pension funds hit by the theft of at
 least $1 million at the Tallahassee-based brokerage firm Meridian Asset
 Management, Inc.  Meridian's president was found to have misappropriated
 assets and created fictitious accounts to cover up the theft.  On June 20,
 2000, SIPC announced a record payment of $31 million to restore stocks and
 cash that 9,738 investors lost due to theft at Sunpoint Securities, a
 Longview, Texas-based firm.  Investors in all 50 states received SIPC reserve
 funds in the Sunpoint case.
 
     ABOUT SIPC
     From its creation by Congress in 1970 through December 2000, SIPC advanced
 $391 million in order to make possible the recovery of $3.8 billion in assets
 for an estimated 443,000 investors.  SIPC estimates that more than 99 percent
 of eligible investors have been made whole in the failed brokerage firm cases
 that it has handled to date.
     SIPC either acts as trustee or works with an independent court-appointed
 trustee in a missing asset case to recover funds.  The statute that created
 SIPC rules provides that customers of a failed brokerage firm receive all non-
 negotiable securities that are already registered in their names or in the
 process of being registered.  At the same time, funds from the SIPC reserve
 are available to satisfy the remaining claims of each customer up to a maximum
 of $500,000.  This figure includes a maximum of $100,000 on claims for cash.
     Recovered funds are used to pay investors whose claims exceed SIPC's
 protection limit of $500,000.  SIPC often draws down its reserve to aid
 investors.  Recovered funds also are used to replenish SIPC's reserve in the
 event that the reserve is tapped in the early stages of a liquidation
 proceeding.
     SIPC is an important part of the overall system of investor protection in
 the United States.  While a number of federal, self-regulatory and state
 securities agencies deal with cases of investment fraud, SIPC's focus is both
 different and narrow:  Restoring funds to investors with assets in the hands
 of bankrupt and otherwise financially troubled brokerage firms.  The
 Securities Investor Protection Corporation was not chartered by Congress to
 combat fraud.
 
     NOTE:  A streaming audio recording of today's media briefing will be
 available on the Web as of 7:30 p.m. ET at
 http://www.thehastingsgroup.com/sipc-donahue.htm .
     Visit SIPC on the Web at http://www.sipc.org .
 
 

SOURCE Securities Investor Protection Corporation
    WASHINGTON, April 3 /PRNewswire/ -- The Securities Investor Protection
 Corporation (SIPC), which maintains a special reserve fund authorized by
 Congress to protect investors at bankrupt brokerage firms, announced today
 that it expects to restore more than $5 million to more than 100 investors who
 had assets stolen at Donahue Securities in Cincinnati, Ohio.
     SIPC also said that it has worked with a trustee to facilitate the quick
 transfer to new brokerage firms of more than 27,000 other Donahue accounts,
 including participants in 403(b) retirement and pension plans set up by
 hospitals, universities and other non-profits in the state.  These clients,
 who were not jeopardized by the theft, would have faced disruption in their
 accounts if not for the intervention by SIPC and the trustee.  Nonetheless,
 SIPC urged all Donahue investors to file claims in order to make the most of
 the potential protection afforded their accounts.
     Stephen Donahue, former president of Donahue Securities, has been accused
 of misappropriating at least $6 million of his clients' funds by enticing them
 to invest in a phony tax-free mutual bond fund, which also was described to
 investors as a money market account fund.  In February 2001, the U.S.
 Securities and Exchange Commission (SEC) moved to take action against Donahue.
     Without admitting the allegations contained in the SEC complaint, Mr.
 Donahue voluntarily consented to the entry of a permanent injunction against
 him.  On March 6, 2001, a trustee was appointed pursuant to the Securities
 Investor Protection Act (SIPA) to control the liquidation of Donahue
 Securities, while at the same time a receiver was appointed to oversee Mr.
 Donahue's personal assets, as well as those of the assets of S.G. Donahue, an
 affiliated company.
     "The Donahue case is a textbook illustration of why Congress created SIPC
 to protect investors at troubled brokerage firms," said SIPC President Michael
 Don.  "While outright theft of this sort is uncommon, it is important for
 investors to know that SIPC is here as a safety net when they need us in these
 situations.  SIPC's mission also was met here in terms of making sure that the
 27,000 Donahue clients who were not victimized avoided having their assets
 tied up for months or longer in a bankrupt brokerage firm."
     Douglas Tripp, an attorney with the Cincinnati law firm of Frost Brown and
 Todd LLC is acting as trustee in the Donahue proceeding.  Tripp said:  "I am
 pleased to report that we successfully transferred nearly all of the broker-
 dealer customer accounts to SIPC member firms within the first few days
 following my appointment.  The claims process commenced on March 28, 2001 with
 a mailing of claims materials to all customers of record, and we expect that
 the individuals identified by the SEC as being victimized by Mr. Donahue in
 this case will eventually be made whole through that process.
     Tripp added:  "However, it is possible that there are other victims who
 have not yet been identified and because of this, we strongly recommend that
 all customers, including those individuals victimized by Mr. Donahue, who have
 not yet filed claims do so as soon as possible."
     SIPC President Michael Don said that the vast majority of the individuals
 who fell victim to Mr. Donahue's scheme were in Ohio.  A total of $6.2 million
 in losses have been identified so far; SIPC expects to advance more than $5
 million from its special reserve fund authorized by Congress towards
 satisfaction of claims of Donahue's customers.
     "I want to emphasize that all Donahue investors in this matter should file
 claims, even if they believe their accounts have been transferred without a
 hitch," SIPC's Don said.  "Under our rules, claims must be filed for errors to
 be corrected.  So, it's really the wisest course of action."
     The Donahue theft case is the most recent example of major use of the SIPC
 reserve fund.  SIPC reported on August 10, 2000 that it was acting as trustee
 on behalf of individual investors and pension funds hit by the theft of at
 least $1 million at the Tallahassee-based brokerage firm Meridian Asset
 Management, Inc.  Meridian's president was found to have misappropriated
 assets and created fictitious accounts to cover up the theft.  On June 20,
 2000, SIPC announced a record payment of $31 million to restore stocks and
 cash that 9,738 investors lost due to theft at Sunpoint Securities, a
 Longview, Texas-based firm.  Investors in all 50 states received SIPC reserve
 funds in the Sunpoint case.
 
     ABOUT SIPC
     From its creation by Congress in 1970 through December 2000, SIPC advanced
 $391 million in order to make possible the recovery of $3.8 billion in assets
 for an estimated 443,000 investors.  SIPC estimates that more than 99 percent
 of eligible investors have been made whole in the failed brokerage firm cases
 that it has handled to date.
     SIPC either acts as trustee or works with an independent court-appointed
 trustee in a missing asset case to recover funds.  The statute that created
 SIPC rules provides that customers of a failed brokerage firm receive all non-
 negotiable securities that are already registered in their names or in the
 process of being registered.  At the same time, funds from the SIPC reserve
 are available to satisfy the remaining claims of each customer up to a maximum
 of $500,000.  This figure includes a maximum of $100,000 on claims for cash.
     Recovered funds are used to pay investors whose claims exceed SIPC's
 protection limit of $500,000.  SIPC often draws down its reserve to aid
 investors.  Recovered funds also are used to replenish SIPC's reserve in the
 event that the reserve is tapped in the early stages of a liquidation
 proceeding.
     SIPC is an important part of the overall system of investor protection in
 the United States.  While a number of federal, self-regulatory and state
 securities agencies deal with cases of investment fraud, SIPC's focus is both
 different and narrow:  Restoring funds to investors with assets in the hands
 of bankrupt and otherwise financially troubled brokerage firms.  The
 Securities Investor Protection Corporation was not chartered by Congress to
 combat fraud.
 
     NOTE:  A streaming audio recording of today's media briefing will be
 available on the Web as of 7:30 p.m. ET at
 http://www.thehastingsgroup.com/sipc-donahue.htm .
     Visit SIPC on the Web at http://www.sipc.org .
 
 SOURCE  Securities Investor Protection Corporation