Banned Broker Conducts Ponzi Scheme
Since the unraveling of Bernard Madoff and his giant Ponzi scheme in 2008, offering frauds have been a key focus for SEC Enforcement. Since then it seems there has been a never ending stream of offering fraud actions. The main street investor focus of the Commission clearly helps fuel this trend.
The Commission’s latest action in this area began shortly before FINRA banned the schemer from the securities business. The regulator’s order, however, did not undercut or halt the fraudulent scheme. To the contrary, over a four-year period, beginning in 2014, over $5 million was raised from about 20 investors and misappropriated by the banned broker. SEC v. Conley, Civil Action No. 1:20-CV-70 (N.D. W.Va. Filed April 16, 2020).
Phillip Conley held Series 7 and 66 securities licenses while associated with a registered broker-dealer. In December 2015 Mr. Conley was suspended by FINRA from association with a broker-dealer in any capacity for failing to comply with a FINRA arbitration award.
The year before Mr. Conley formed ALPAX LLC and its affiliated shell entities. ALPAX supposedly provided management and consulting services. Investors, solicited on the phone and in person, were sought for a variety of investments tied to ALPAX, some of which were discussed in PPMs used in the solicitations. For example, one PPM claimed that the funds would be invested in Student Housing tied to real estate transactions in developed higher education markets, primarily on the east coast. Another stated that the money would be invested in privately held firms in real estate identified with oil and gas technologies.
In some instances, investors were told about other claimed investments in personal solicitations. For example, Mr. Conley told some investors that their funds would be used to convert apartment buildings and other properties into dormitories for West Virginia University. Others were told that the funds were to “close a big deal.” Investors were also furnished with account statements, confirming their investments.
Despite M. Conley’s apparent professionalism and knowledge, the representations were false. There were no investments in Student Housing; no investor funds were put into oil and gas assets; buildings were not constructed for the University; and there was no “big deal.” To the contrary the money went to Mr. Conley – he misappropriated the investor funds. The complaint alleges violations of Securities Act Section 17(a), Exchange Act Section 10(b) and Advisers Act Sections 206(1), 206(2) and 206(4). The case is pending. See Lit. Rel. No. 24798 (April 18, 2020).