finra

FINRA

For Release:
Contacts:
Monday, July 27, 2009
Nancy Condon (202) 728-8379
Brendan Intindola (646) 315-7277

 

 

FINRA Permanently Bars Broker Operating Ponzi Scheme Involving Customers of Broker-Dealers

Victims Included Members of Broker's Church; Matter Referred to Criminal Authorities

 

Washington, D.C. — The Financial Industry Regulatory Authority (FINRA) announced today that it has permanently barred Kenneth George Neely of St. Louis, a former registered representative with AXA Advisors, LLC, for conducting a Ponzi scheme involving customers of AXA, his previous employer Stifel, Nicolaus & Co. Inc., as well as Neely's family, friends and fellow church members.

 

"This individual was robbing Peter to pay Paul," said Susan L. Merrill, FINRA Executive Vice President and Chief of Enforcement. "What is especially disturbing about this case is the exploitation of family and church relationships to defraud unsuspecting investors of their hard-earned savings to finance both the scheme and personal expenses."

 

Neely only stopped collecting funds when FINRA staff confronted him about the fictitious real estate investment trust (REIT) earlier this month. AXA terminated Neely's employment upon his admission to FINRA staff that he converted customer funds for his personal use. FINRA's investigation is continuing.

 

FINRA found that Neely conducted an elaborate Ponzi scheme, fraudulently inducing at least 25 brokerage customers, family and fellow church members to participate in a fictitious "St. Louis Investment Club" and to invest in the non-existent real estate investment trust, the "St. Charles REIT."

 

To conceal the scheme from his employers and federal and state tax authorities, Neely typically had investors make payments to his wife, in increments of $2,000 to $3,000. As such, the payments would avoid bank scrutiny and could go undetected when the funds were converted to cash. Neely prepared false invoices for the REIT purchases that were designed to appear like official ownership certificates

 

These fraudulent certificates — created using Neely's personal computer — bore the names of a fictitious "President" and "Secretary" and listed Neely's mother's home address as the address of the St. Louis Investment Club. In some cases, Neely falsely assured his investors that their investment would be carefully handled because he was on the investment club's board of directors.

 

In one particular instance, FINRA found that Neely stole $154,000 from a long-time friend and recent retiree, as well as an additional $10,000 from that friend's daughter. Neely had begun managing the friend's retirement assets in 2002, but by 2007 Neely was facing demands from clients who were seeking the return of their previously invested money.

 

Neely approached the friend with the promise of a high rate of return on the fraudulent St. Charles REIT investment. While Neely eventually returned $10,000 to this person, Neely used the balance of the investment to pay down personal debts, including country club and golf expenses. Neely's monthly country club dues and entertainment expenses sometimes exceeded $4,000.

 

In another instance, FINRA found that Neely induced a fellow church member to invest $35,000 of a retirement account. Neely promised a 5 percent rate of return from the St. Charles REIT investment and told the customer that membership in the St. Louis Investment Club was limited to a discrete number of members. Although Neely made small interest payments in cash in the beginning, the payments dwindled and later ended as Neely used the balance of the $35,000 investment to fund personal expenses.

 

In total, Neely improperly used over $600,000 in investors' assets, returned about $300,000 of the funds back to some of the investors and thus converted more than half of this amount to his own personal use.

 

Investors can obtain more information about, and the disciplinary record of, any FINRA-registered broker or brokerage firm by using FINRA's BrokerCheck. FINRA makes BrokerCheck available at no charge. In 2008, members of the public used this service to conduct 11.6 million reviews of broker or firm records. Investors can access BrokerCheck at www.finra.org/brokercheck or by calling (800) 289-9999.

 

FINRA, the Financial Industry Regulatory Authority, is the largest independent regulator for all securities firms doing business in the United States. FINRA is dedicated to investor protection and market integrity through comprehensive regulation. FINRA touches virtually every aspect of the securities business - from registering and educating all industry participants to examining securities firms; writing and enforcing rules and the federal securities laws; informing and educating the investing public; providing trade reporting and other industry utilities; and administering the largest dispute resolution forum for investors and firms.

 

For more information, please visit our Web site at www.finra.org.