NEWARK, N.J. – A New Jersey man was indicted and charged by the Securities and Exchange Commission for allegedly operating a $50 million Ponzi scheme.
Between 2006 and 2009, David Connolly offered more than 200 investors shares in at least 25 separate investment vehicles that would purportedly purchase and manage rental properties in New Jersey and Pennsylvania, according to the SEC complaint.
Through his firm Connolly Properties, the Watchung man promised investors monthly dividends of at least 10 percent based on cash-flow profits from rental income at the apartment buildings, regulators say. He also allegedly claimed that investments would grow in principal because of the appreciation of the property.
When the investments did not pan out, however, Connolly used new investors’ money to pay off old investors, according to the SEC.
Regulators also accuse Connolly of embezzling at least $2 million in investor funds for his personal use.
Federal prosecutors indicted Connolly in a parallel investigation on one count of securities fraud among other criminal charges.
In addition to the $2 million in payments he made to himself, Connolly also wrote checks to “cash” in excess of $2.5 million, regulators say.
“Even after Connolly stopped making dividend payments to investors in April 2009, he still continued to pay himself dividends as well as a $250,000 ‘salary’ out of investor funds,” the SEC said in a statement.
The payments “vastly exceeded any dividends to which he would be entitled through his ownership stake,” according to the statement.