SEC charges N.J. man with real estate investment scam
WASHINGTON (Legal Newsline) - The Securities and Exchange Commission on Thursday charged a New Jersey man with operating a Ponzi-like investment plan.
The SEC alleges that David M. Connolly, of Watchung, N.J, persuaded investors to buy shares in real estate investment vehicles through his firm Connolly Properties Inc. He said there would be monthly dividends based on cash-flow profits from rental income at the apartment buildings as well as the growth of their principal from the appreciation of the property.
But when the real estate investments did not produce the promised dividends, Connolly developed a plan to pay dividends using the Ponzi-like method in which the money for the earliest investors was obtained from new investors, the SEC says. Connolly also siphoned off at least $2 million in investor funds for his personal use, it claims.
"David Connolly presented himself to investors as a successful real estate investment manager with a track record of paying consistent, high returns," said George S. Canellos, Director of the SEC's New York Regional Office.
"In truth, Connolly's operation was essentially a shell game intended to raise additional funds from new or existing investors in order to perpetuate his fraudulent scheme."
None of Connolly's securities offerings in the investment vehicles were registered with the SEC as required under the federal securities laws, according to the SEC communique. The SEC said that since Connolly lacked sufficient revenues from the rental income he continued to raise millions of dollars for new investment vehicles.
The money from the new investments was used to the monthly cash-flow dividends in excess of 10 percent to investors in older investment vehicles. Connolly also refinanced properties and improperly used the cash proceeds to continue the scheme. When new investor funds dried up and rental income did not pay the mortgage the properties were foreclosed and the investors' equity was eliminated.