Stephen G. Donahue and Donahue Securities Inc.

Litigation Release No. 17508 / May 8, 2002

Securities and Exchange Commission v. Stephen G. Donahue and Donahue Securities Inc., (U.S.D.C. S.D. Ohio, Western Division at Cincinnati, Civil Action No. C-1-01-116, filed February 26, 2001).

The Securities and Exchange Commission announced that on April 24, 2002, the Honorable Judge Sandra S. Beckwith entered an Agreed Order resolving the Commission's Motion for an Order to Show Cause and requiring the Cincinnati law firm Brown Cummins & Brown Co., L.P.A. to pay to the court-appointed Receiver the sum of $65,690.00 for the benefit of injured investors. Brown Cummins agreed to the Order without admitting the allegations contained in the Commission's Motion. The Commission's Motion for an Order to Show Cause, filed on July 13, 2001, alleged that after entry of the Court's Order of Permanent Injunction on February 26, 2001, Brown Cummins transferred funds belonging to Defendant Stephen G. Donahue into its general operating account to pay Donahue's legal fees in violation of the asset freeze imposed by the Order of Permanent Injunction. The Motion also alleged that Brown Cummins failed to turn over funds belonging to Donahue to the court-appointed Receiver as required by the Court's Order Appointing a Receiver entered on March 6, 2001.

The Commission's Complaint in this matter alleged that Donahue engaged in a 12-year scheme to misappropriate at least $6 million from at least 200 of his brokerage clients. The Court's Order of Permanent Injunction, entered pursuant to Donahue's consent, permanently enjoined Donahue from further violating the antifraud provisions of the federal securities laws, froze all funds belonging to Donahue or in which he held a beneficial interest and ordered Donahue to pay disgorgement and civil penalties in amounts to be determined in a separate hearing. The Court's Order Appointing a Receiver ordered all persons to turn over to the Receiver any property owned by Donahue or in which Donahue had an interest.

For further information, see LR-16909 (February 28, 2001) and LR-17075 (July 24, 2001).