FINRA Bars Brokers in Multi-Million-Dollar Ponzi Schemes
Washington, DC — The Financial Industry Regulatory Authority (FINRA) announced today that in separate enforcement actions, it has permanently barred two brokers for running multi-million-dollar Ponzi schemes that victimized a wide range of investors — including elderly individuals, mentally and physically impaired individuals, church members and even family friends.
FINRA barred Oren Eugene Sullivan, Jr., of Rock Hill, SC, for misappropriating approximately $3.7 million in a decades-long Ponzi scheme involving more than 30 clients — including 15 widows, two Alzheimer's victims and an individual with developmental impairments. At least eight of the affected clients were over 80 years old and another four were over 70 years of age. Numerous victims considered Sullivan a close family friend.
FINRA also barred William Walter Spencer, Sr., of Franklin, TN, who "borrowed" nearly $2 million from elderly members of his church and from customers of his employing broker-dealer, Wiley Bros. — Aintree Capital, LLC.
"The protection of seniors and other vulnerable investors from unscrupulous brokers remains one of FINRA's highest priorities, and we will continue to identify and expel those within our jurisdiction who take unfair advantage of their clients," said Susan L. Merrill, FINRA Executive Vice President and Chief of Enforcement. "The misconduct of these brokers was nothing short of egregious — and their financial exploitation of the elderly, the infirm and people who considered them trusted friends shocks the conscience."
In the case of Sullivan, who was a broker for NYLife Securities, FINRA found that from late 1988 to October 2008, Sullivan obtained money for personal use by leading his victims to falsely believe that they were investing in promissory notes or other legitimate financial products issued by NYLife or its affiliates. Most of the victims had already invested in one or more NYLife products sold by Sullivan. In exchange for the money he took from customers, Sullivan usually provided a one-page "note" stating the amount of principal and promising an annual interest rate, which ranged from 6 percent to 12 percent. Rather than disclosing that Sullivan was borrowing the money for his own personal use, the notes stated that the borrower was an entity named "IFP." "IFP" was a term Sullivan created that stood for "insurance financial product" or "insurance financial professional," but no valid corporation or other legal entity named "IFP" ever existed.
As part of his deception, Sullivan asked clients to pay for the "notes" with personal checks made out to "IFP-NYL" or "IFP-NYLife." Notwithstanding the fact that the checks did not list Sullivan as the payee, his bank, a well-known institution with millions of customers and thousands of branches, allowed him to deposit the proceeds of the checks into his own account. Sullivan then used the money for personal expenses, including the purchase of cars for his children and the payment of his children's tuition at private colleges. Eventually, Sullivan found it necessary to take money from newer victims to meet the obligations owed to earlier victims.
In total, Sullivan obtained approximately $3.7 million pursuant to his scheme and owed approximately $2.2 million at the time he was caught. NYLife has reimbursed the $2.2 million to the affected customers.
Sullivan's scheme came to light when one customer and her daughter discovered that he had misappropriated $10,000 given to him for the purchase of variable annuities for the benefit of her great-grandchildren. Instead of investing the money as promised, Sullivan used the funds to pay for his son's wedding. Over a period of approximately three years, the customer had never received a statement showing the purchase or the investment performance of the variable annuities despite numerous requests. Ultimately, the customer and her daughter visited Sullivan at his office and demanded to see the statements. In response, Sullivan attempted to give the customer an interest-bearing note for the $10,000. He also attempted to avoid being reported to his superiors by giving the customer a letter he fabricated and fraudulently claimed to have been written by his firm's compliance officers. The letter falsely stated that he had already been reprimanded for his misappropriation. The customer's daughter was suspicious of the letter and contacted Sullivan's superiors, who then commenced an internal investigation and discovered Sullivan's vast Ponzi scheme.
In the second case, from December 1997 to May 2008, Spencer induced investors to invest in promissory notes falsely promising rates of return 10 to 12 percent higher than rates available on traditional investments. In all, there were 234 such transactions and 80 percent of the investors were elderly members of his church community who had previously invested their funds in certificates of deposit or savings accounts. FINRA found that Spencer knew at the time that he procured the loans that he did not have the liquid assets or ongoing income necessary to pay the interest and return the principal to the investors. Spencer failed to repay many of the individuals as promised and used the proceeds of new loans to satisfy existing loans.
All of the individuals from whom Spencer borrowed funds were of modest means. For example, one customer was a 62-year-old school bus driver for special needs children who loaned Spencer $60,000 after her husband's death. Spencer used the loan to repay other customers. Another customer faced the threat of foreclosure on his home due to Spencer's failure to repay the $12,250 loan he made. To avert the pending foreclosure, Spencer used funds from another customer to make the payment owed. An 80-year-old customer loaned Spencer $20,500. She later needed to make repairs to her home, but was unable to do so because of Spencer's failure to repay the principal and interest due.
In settling these matters, neither Spencer nor Sullivan admitted nor denied the charges, but consented to the entry of FINRA's findings.
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.
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