UNITED STATES OF AMERICA

Before the

SECURITIES AND EXCHANGE COMMISSION

SECURITIES EXCHANGE ACT OF 1934

RELEASE NO. 44578 / July 19, 2001

INVESTMENT ADVISERS ACT OF 1940

RELEASE NO. 1951 / July 19, 2001

ADMINISTRATIVE PROCEEDING

FILE NO. 3-10536

In the Matter of

STEPHEN G. DONAHUE,

Respondent.

EXHIBIT 1

ORDER INSTITUTING PROCEEDINGS,

MAKING FINDINGS AND IMPOSING

REMEDIAL SANCTIONS PURSUANT TO

SECTION 15(b) OF THE SECURITIES

EXCHANGE ACT OF 1934 AND SECTION

203(f) OF THE INVESTMENT ADVISERS ACT

OF 1940

I.

The Securities and Exchange Commission ("Commission") deems it

appropriate in the public interest that public administrative proceedings be

instituted against Stephen G. Donahue ("Donahue") pursuant to Section

15(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Section

203(f) of the Investment Advisers Act of 1940 ("Advisers Act").

II.

In anticipation of the institution of these proceedings, Donahue has

submitted an Offer of Settlement ("Offer") which the Commission has

determined to accept. Solely for the purpose of these proceedings and any

other proceedings brought by or on behalf of the Commission, or to which

the Commission is a party, and without admitting or denying the

Commission's findings contained herein, except as to the Commission's

jurisdiction over the respondent and over the subject matter of the

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EXHIBIT I

proceeding and as to the Commission's findings set forth in Paragraphs

III.A., III.B. and III.C., which are admitted, Donahue consents to the entry

of this Order Instituting Proceedings, Making Findings and Imposing

Remedial Sanctions Pursuant to Section 15(b) of the Securities Exchange

Act of 1934 and Section 203(f) of the Investment Advisers Act of 1940

("Order").

Accordingly, IT IS HEREBY ORDERED that proceedings pursuant to Section

15(b) of the Exchange Act and Section 203(f) of the Advisers Act be and

hereby are instituted.

On the basis of this Order and Donahue's Offer, the Commission finds that:

A. Donahue was the president, a registered representative and a person

associated with Donahue Securities Inc. ("DSI"), a broker-dealer registered

with the Commission from 1989 through the present and an investment

adviser registered with the Commission from 1992 through the present.

B. Donahue was the president and a person associated with SG Donahue &

Company, Inc. ("SG Donahue"), an investment adviser registered with the

Commission from 1996 through January 2001.

C. On February 26, 2001, in the case of SEC v. Stephen G. Donahue and

Donahue Securities Inc., (Civil Action No. C-1-01-116), the Honorable

Sandra S. Beckwith, United States District Judge for the Southern District of

Ohio, Western Division at Cincinnati, entered an Order of Permanent

Injunction against Donahue, pursuant to his consent and without Donahue

admitting or denying the allegations in the Commission's Complaint,

enjoining Donahue from violating Section 17(a) of the Securities Act of

1933, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder and

aiding and abetting violations of Section 15(c) of the Exchange Act and Rule

15c1-2 thereunder. The Order also froze Donahue's assets, ordered the

appointment of a receiver over Donahue's assets and ordered Donahue to,

among other things, pay disgorgement and pay a civil penalty, if any, in

amounts to be determined by the Court.

D. In its Complaint, the Commission alleged that from approximately 1989

through February 2001, Donahue misappropriated at least $6 million from

approximately 200 to 250 investors who were his brokerage customers.

The Complaint also alleged that Donahue first represented to the investors

that he would invest their money in a DSI money market fund, and later in

the scheme, in a DSI tax free bond fund, both of which would purportedly

pay interest ranging from 5% to 6%. The Complaint also alleged that

neither the DSI money market fund nor the DSI tax free bond fund existed

and that Donahue knew that neither fund existed. The Complaint also

alleged that Donahue obtained checks from the investors purportedly to

i nvest in the fictitious funds. However, the Complaint alleged, Donahue

used the investors' money for both business and personal expenses instead

of investing the investors' money as represented. For example, the

Complaint alleged that Donahue used the investors' money to: pay his

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EXHIBIT I

personal taxes; buy a condominium in Florida; renovate the condominium;

buy a vacant lot and building supplies for a personal home; and open a

brokerage account and purchase mutual funds in Donahue's own name.

Finally, the Complaint also alleged that Donahue used investor funds to

fund the business operations of DSI and SG Donahue.

IV.

In light of the foregoing, it is in the public interest to impose the sanctions

specified in the Offer submitted by Donahue.

Accordingly, IT IS HEREBY ORDERED that Stephen G. Donahue be, and

hereby is, barred from association with any broker, dealer or investment

adviser.

By the Commission.

Jonathan G. Katz

Secretary

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