UNITED STATES OF AMERICA Before the SECURITIES AND EXCHANGE COMMISSION SECURITIES EXCHANGE ACT OF 1934 Release No. 39752 / March 13, 1998 ADMINISTRATIVE PROCEEDING File No. 3-9558 ) In the Matter of: ) ORDER INSTITUTING ADMINISTRATIVE ) PROCEEDINGS, MAKING FINDINGS AND ) IMPOSING REMEDIAL SANCTIONS JAMES D. ROCCO ) ) Respondent. ) ) ) I. The Commission deems it appropriate and in the public interest that public administrative proceedings be instituted pursuant to Sections 15(b) and 19(h) of the Securities Exchange Act of 1934 (Exchange Act) against James D. Rocco (Rocco). In anticipation of the institution of these administrative proceedings, the Respondent has submitted an Offer of Settlement, which the Commission has determined to accept. Solely for the purpose of this proceeding and any other proceeding brought by or on behalf of the Commission, or to which the Commission is a party, and without admitting or denying the findings herein, except as to jurisdiction and the findings contained in Sections III.A and III.R herein, which are admitted, the Respondent consents to the entry of this Order Instituting Administrative Proceedings, Making Findings and Imposing Remedial Sanctions. II. Accordingly, it is ordered that administrative proceedings pursuant to Sections 15(b) and 19(h) of the Exchange Act be, and they hereby are, instituted. ======END OF PAGE 1====== III. On the basis of this Order and the Offer of Settlement submitted by the Respondent, the Commission makes the following findings<(1)>: RESPONDENT A. Rocco, age 46, resides in Jeannette, Pennsylvania. From approximately 1983 through August 1992, Rocco was affiliated with First Chicago Group (FCG), an unincorporated entity which issued securities. At no time has Rocco been registered as a broker-dealer with the Commission or associated with a broker-dealer registered with the Commission. ENTITIES AND SECURITIES INVOLVED B. FCG was an unincorporated entity through which Rocco and another individual issued, offered and sold unregistered securities. Rocco and the other individual assigned the titles of president and vice-president of FCG to fictitious persons. In August 1992, FCG changed its name to Wedgewood. FCG was never registered with the Commission as a broker-dealer, and none of the securities issued by it were registered with the Commission. C. Capital Appreciation Portfolio (CAP) purported to be a subsidiary of FCG and a private investment limited partnership which would invest in blue chip stocks. From 1983 through August 1992, Rocco and another individual used FCG as a vehicle to offer and sell at least $10 million in unregistered CAP securities to at least 470 investors. D. Unified Income Properties (UIP) purported to be a subsidiary of FCG and an investment vehicle through which investor funds would be pooled and reinvested in residential income-producing properties. From 1988 through August 1992, Rocco and another individual used FCG as a vehicle to offer and sell at least $600,000 in unregistered UIP securities to at least twenty-five investors. E. From February 1991 through August 1992, Rocco and another individual used FCG as a vehicle to issue, offer and sell at least $14 million of unregistered securities in the form of FCG CD s to at least 345 investors. MISREPRESENTATIONS AND OMISSIONS IN THE OFFER AND SALE OF SECURITIES F. From 1983 through August 1992, Rocco and another individual prepared documents in the offer and sale of the CAP interests (CAP offering documents) and provided them personally, and through salespersons, to investors and prospective investors. The CAP offering documents falsely stated, among other things, that: 1. CAP would pool investor funds and reinvest them in the common stock of the top fifty companies on the New York 328f:\3439752.txt s <(1)> The findings contained herein are made pursuant to Rocco s Offer of Settlement and are not binding on any other person or entity named as a respondent in this or any other proceeding. ======END OF PAGE 2====== Stock Exchange; 2. CAP had historical yearly earnings of between 15% and 85.5% and that during one year CAP had a return of 1,000%; 3. FCG would use a short-selling technique with CAP investor funds to produce a superior return; and 4. FCG would receive 40% of all profits realized as a management fee and that the remaining 60% would be divided on a pro rata basis among investors. G. The CAP offering documents contained omissions of material fact in that they failed to inform investors, among other things, that investor funds would be used for personal expenses and for other FCG expenses unrelated to CAP. H. From 1988 through August 1992, Rocco and another individual prepared documents in the offer and sale of the UIP interests (UIP offering documents) and provided them personally, and through salespersons, to investors and prospective investors. The UIP offering documents falsely stated, among other things, that: 1. Funds invested in UIP would be pooled and reinvested in prime residential income-producing properties located in Chicago; and 2. Principal invested in UIP would be repaid to investors. I. The UIP offering documents contained omissions of material fact in that they failed to inform investors, among other things, that investor funds would be used for personal expenses and for other FCG expenses unrelated to UIP. J. From 1988 through August 1992, Rocco and another individual prepared documents in the offer and sale of the FCG CD s (FCG CD offering documents) and provided them personally, and through salespersons, to investors and prospective investors. The FCG CD offering documents falsely stated, among other things, that: 1. The FCG CD s were high-yielding, safe and insured by the Federal Deposit Insurance Corporation (FDIC) to $100,000 per depositor; 2. The minimum FCG CD investment of $10,000 would be used to purchase nine-month FDIC insured CD s or thirty-six month FDIC insured FCG escalator CD s; 3. FCG CD investor funds would be pooled and used to purchase jumbo certificates of deposit from money center banks and the jumbo certificates would be redistributed to investors in the form of the FCG CD s; and 4. FDIC insurance would pass through from the money center banks to investors in the FCG CD s. K. The FCG CD offering documents contained omissions of material fact in that they failed to inform investors, among other things, that: ======END OF PAGE 3====== 1. Rocco and another individual would deposit FCG CD investor funds in bank and money market accounts in the name of FCG, Rocco and others; and 2. FCG CD investor funds would be used to pay off earlier investors and to purchase standard bank certificates of deposit whose FDIC insurance would not pass through to FCG CD investors. L. From 1983 to August 1992, Rocco, along with others, personally sold interests in CAP and UIP and the FCG CD s. In discussions with investors and prospective investors, Rocco repeated the same misstatements, and omitted the same material facts, described in Paragraphs III.F. through III.K. above. In addition, Rocco falsely represented to investors in these discussions that CAP was a stock reinvestment fund that was not subject to the federal securities laws because it was a private investment club that only used word of mouth marketing to solicit new investors. FEDERAL SECURITIES LAWS VIOLATIONS M. From 1983 through August 1992, Rocco willfully violated Sections 5(a) and 5(c) of the Securities Act of 1933 (Securities Act) in that he, directly or indirectly, made use of the means or instruments of transportation or communication in interstate commerce or of the mails to offer to buy or offer to sell, or to sell through the use or medium of a prospectus or otherwise, or carried or caused to be carried through the mails or in interstate commerce, by the means or instruments of transportation, for the purpose of sale or for delivery after sale, securities, specifically interests in CAP, interests in UIP, and the FCG CD s, for which no registration statement was in effect or filed with the Commission. N. From 1983 through August 1992, Rocco willfully violated Section 17(a) of the Securities Act in that he, in the offer or sale of securities, specifically interests in CAP, interests in UIP, and the FCG CD s, 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 employed devices, schemes or artifices to defraud; obtained money or property by means of untrue statements of material fact or omitted to state material facts necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; or engaged in transactions, practices or courses of business which would or did operate as a fraud or deceit upon purchasers or prospective purchasers of such securities. As a part of this conduct, Rocco engaged in the activity described in paragraphs III.F. through III.L. above. O. From 1983 through August 1992, Rocco willfully violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder in that he, in connection with the purchase or sale of securities, specifically interests in CAP, interests in UIP, and the FCG CD s, by the use of the means or instrumentalities of interstate commerce or of the mails, directly or indirectly, employed devices, schemes or artifices to defraud; made untrue statements of material fact or omitted to state material facts necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; or engaged in acts, practices, or courses of business which would or did operate as a fraud or deceit upon the purchasers of the securities, as described in paragraph III.M. above. ======END OF PAGE 4====== P. From 1983 through August 1992, Rocco willfully violated Section 15(a)(1) of the Exchange Act in that, while acting as a broker, he made use of the mails or the means or instrumentalities of interstate commerce to effect transactions in, or to induce or attempt to induce the purchase or sale of securities, specifically interests in CAP, interests in UIP, and FCG CD s, without being registered in accordance with Section 15(b) of the Exchange Act. As part of this conduct, Rocco effected transactions for investors in CAP, UIP and the FCG CD s while he was neither registered with the Commission nor associated with a broker-dealer registered with the Commission. Q. From 1983 through August 1992, Rocco willfully violated Section 15(c) of the Exchange Act and Rule 15c1-2 thereunder in that he made use of the means or instrumentalities of interstate commerce or of the mails to effect transactions in, or to induce or attempt to induce the purchase or sale of securities, specifically interests in CAP, interests in UIP, and the FCG CD s, by means of manipulative, deceptive, or other fraudulent devices or contrivances, including acts, practices or courses of business which operated or would operate as a fraud or deceit, or made untrue statements of material facts or omitted to state material facts necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, which statements or omissions were made with knowledge or reasonable grounds to believe that they were untrue or misleading. As part of this conduct, Rocco engaged in the activity described in Paragraphs III.M. and III.O. above. R. On March 4, 1998, the United States District Court for the Northern District of Illinois, in the case of Securities and Exchange Commission v. Ronald A. Monzione, James D. Rocco and Arthur R. Lapka (Civil Action No. 96 C 6353), entered a Final Judgment and Order of Permanent Injunction by consent against Rocco, which enjoins him from future violations of Sections 5(a), 5(c) and 17(a) of the Securities Act, and Sections 10(b), 15(a) and 15(c) of the Exchange Act and Rules 10b-5 and 15c1-2 thereunder. IV. In view of the foregoing, it is in the public interest to impose the sanction specified in the Offer of Settlement. Accordingly, IT IS ORDERED THAT Rocco is barred from association with any broker, dealer, municipal securities dealer, investment adviser or investment company, such sanction to begin from the date of the entry of the Commission s Order. By the Commission. Jonathan G. Katz Secretary ======END OF PAGE 5======