Multi-Million-Dollar Real Estate Ponzi Schemer Admits Fraud

Allison Tussey —  February 11, 2013 — 1 Comment

David Connolly, 51, Watchung, New Jersey, pleaded guilty to one count of securities fraud and one count of money laundering, admitting that he defrauded victims of an investment scheme by misusing their capital contributions and misrepresenting the performance of their investments. 

The defendant pleaded guilty to counts one and 10 of a superseding indictment before U.S. District Judge William J. Martini in Newark federal court.

Connolly was originally charged by Indictment on May 16, 2012. On January 23, 2013, the grand jury returned a 15-count superseding indictment charging Connolly with one count of securities fraud, six counts of mail fraud, two counts of wire fraud, and six counts of money laundering.

According to documents filed in this case and statements made in court:

From at least 2006 through October 2009, Connolly orchestrated a real estate investment fraud scheme in which he took in more than $50 million from more than 200 victims, causing losses of at least $9 million.

To induce victims to invest, Connolly made various types of materially false and misleading statements and omissions. He told victims their money would be used to purchase a specific property, and the property would generate rental income that would be used to pay investors monthly distributions. Connolly also told victims their money would be held in escrow until the closing of a purported real estate transaction, and each property would be financially independent from all the others. Connolly misrepresented the amount of equity victims had in the properties, the condition of the properties, and the financial performance of the properties. Although the investment properties experienced significant negative cash flow, Connolly told investors they were performing well.

Connolly took significant portions of his victims’ money, which had been provided for specific real estate transactions, and used it for other purposes, without disclosing the diversions of funds to victims. These included funding unrelated real estate transactions in which Connolly was engaged; paying prior victims; and paying himself. The scheme collapsed in the summer of 2009, after Connolly began to default on the mortgage payments for the investment properties.

Connolly faces a maximum potential penalty of 20 years in prison and a $5 million fine on the securities fraud count and a maximum potential penalty of 10 years in prison and a $250,000 fine on the money laundering charges. He also agreed to forfeit $9.92 million as part of the plea agreement. Sentencing is scheduled for June 4, 2013.

U.S. Attorney Paul J. Fishman announced the guilty plea.

U.S. Attorney Fishman credited special agents of the FBI, under the direction of Acting Special Agent in Charge David Velazquez in Newark, for the investigation leading to the indictment. He also thanked special agents of IRS-Criminal Investigation, under the direction of Acting Special Agent in Charge Shantelle P. Kitchen, for their important contributions to the investigation.

The government is represented by Assistant U.S. Attorney Charlton A. Rugg of the OCDETF Unit and Senior Litigation Counsel Leslie F. Schwartz of the Economic Crimes Unit.

If you believe you are a victim of or otherwise have information concerning this alleged scheme, you are encouraged to contact the FBI at 973-792-3000.

This case was brought in coordination with President Barack Obama’s Financial Fraud Enforcement Task Force. President Obama established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes. The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch and, with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes.

Allison Tussey

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One response to Multi-Million-Dollar Real Estate Ponzi Schemer Admits Fraud

  1. I have been trying to get several people indicted on mortgage foreclosure fraud (NJ) and bankruptcy fraud (NY) for almost five years now. There is undenieable proof of the mortgage foreclosure fraud that is recorded documented paper trail. The FBI, AG, US Trustees, Federal Prosecutor and many others have been ignoring this. The FBI picks and chooses who and if they indict. The attorney for Bank of America committed this mortgage foreclosure fraud and my grievance against him that I filed with the Office of Attorney Ethics was dismissed. You can default on a loan that was satisfied two years prior to the filing of the LIS PENDENS for foreclosure and the filing was not on the subject property. When caught you don’t get to file for bankruptcy and it then becomes bankruptcy fraud. The fraudulent judgement that was recorded on May 30, 2008 was vacated and another LIS PENDENS for foreclosure is still pending. This time it’s on the subject property and the amount of the loan is correct. These people have been getting away with this and only I have been egregiously prosecuted. Since when does a US Trustee give an attorney a do over on a mortgage foreclosure fraud so that the paper work matches the bankruptcy papers? Check it out yourself. It’s public information in NJ docket #F-35621-07 & F-03836-10. These people got away with stealing $355K from Bank of America. The attorney for Bank of America who filed all these papers has a foreclosure mill in Bloomfield, NJ and I know this wasn’t his one and only mortgage foreclosure/mortgage fraud that he has committed.
    Your blog is great but everytime I see these articles I cringe because I know it’s smaller than the tip of the iceburg and so many people are getting away with thier crimes while law abiding citizens lose thier jobs, homes and thier children are going hungry while these people have thier credit intact and the attorney and his firm are racking in hundred of thousands of dollars from these frauds and foreclosures.

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