News Release

WASHINGTON, D.C. April 3, 2001 - 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."

The following statement was issued today by Michael G. Oxley, Member of Congress, Fourth Ohio District, and Chairman, House Financial Services Committee:
"Congratulations to SIPC for returning over $5 million to investors, many of them from my state, who were defrauded in the Donahue Securities case. This kind of effective response to fraud gives everyone faith in the strength of our financial systems. Quality oversight from the SEC and SIPC is one of the reasons our financial markets are the envy of the world."

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-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.

FOR MORE INFORMATION, CONTACT:
Ailis Aaron, The Hastings Group,
(703) 276-1116 or aaaron@hastingsgroup.com

Visit SIPC on the Web at www.sipc.org