Ex- Coastal Investment Advisors Inc. President Michael Donnelly and the firm’s affiliated broker-dealer will settle Securities and Exchange Commission charges accusing him of bilking brokerage customers and advisory clients of close to $2M. According to the SEC complaint, Donnelly’s 13 victims included unsophisticated investors and older investors belonging to the 64 to 85 age group.
Donnelly would get clients to write checks to Donnelly Advisors Group. The money was supposed to pay for their investments. Instead, the regulator says, rather than investing the funds, Donnelly took investor money and used them to pay for his own living expenses and for his children’s private school tuition.
From ’07 to ’14, he hid the securities scam by providing bogus trade confirmations, account statements, and other fake information that made it appear as if investors had actual investments that were doing well. For example, he generated portfolio reports that listed fake investments. He even set up an online report for at least one client in which he inserted ticker symbols of stocks he supposedly bought for that individual. Donnelly also modified brokerage statements and trade confirmations to make clients think they were holding certain investments.
According to the criminal action against him, which is discussed below, when one couple asked Donnelly for their money, he allegedly convinced another investor to liquidate part of an annuity while making it seem as if the funds were to go toward buying out another investor. He then used the money to give the couple back their funds. Donelly’s investment scam failed last year after he was caught.
To resolve the civil case, Donnelly has admitted to bilking his clients. He agreed to permanent enjoinment from violating federal securities laws’ antifraud provisions in the future and to a permanent securities industry bar. He also consented to disgorge $1.9M of ill-gotten gains and will pay $365,723 of prejudgment interest.
Donnelly is also a registered representative of Coastal Equities Inc.
In the parallel criminal case, the U.S. Attorney’s Office for the Eastern District of Pennsylvania charged Donnelly with one count of securities fraud and one count of wire fraud. If convicted, Donnelly could face up to 40 years behind bars, supervised release, a $5.25M fine, and a $200 special assessment.
Elder Financial Fraud
Financial exploitation of older seniors and vulnerable adults continues to be a problem, which is why regulators have stepped up their efforts to come up with protections that should safeguard these investors and their money. FINRA and the North American Securities Administrators Association recently proposed and issued rules, respectively, to protect vulnerable and older investors. At a recent Securities Industry and Financial Markets Association-sponsored conference, SEC national associate director Kevin Goodman said that the agency is targeting brokers who often sponsor free lunches to draw in clients. Goodman is with the Commission’s broker-dealer examination program.
Free lunches typically target senior invertors. Although technically such gatherings for marketing a broker’s services are not inappropriate, Goodman noted that firms needed to do a better job of supervising these sessions. Often, there is a slippery slope with these lunches in that rather than merely educating prospective investors about investment opportunities, they also exist to sell products and recruit new clients. According to former NASAA president Joseph Borg, some brokers are using free lunch seminars to target their next victims.
If you or someone you love is the victim of securities fraud, contact our elder financial fraud lawyers today. We are here to help older and vulnerable investors recoup their losses. Shepherd Smith Edwards and Kantas, LTD LLP represents investors throughout the U.S.
Read the SEC Civil Action (PDF)
Investment Advisor Charged With Bilking Clients Out Of Nearly $2 Million, DOJ, October 19, 2015
“Free Lunch” Investment Seminars-Avoiding the Heartburn of a Hard Sell, FINRA