St. Peters Stockbroker Sentenced on Federal Charges Involving a Ponzi Scheme

March 1, 2010 - ST. LOUIS, MO—The United States Attorney’s Office announced today that Kenneth G. Neely was sentenced to 37 months in prison on a mail fraud charge involving an investment Ponzi scheme in which he swindled investors out of more than $600,000.

Kenneth Neely worked for a number of investment/brokerage firms between the mid-1980s and July 2009. Beginning in or around 2000, Neely experienced a decrease in income, but maintained and even increased his discretionary spending at such places as a country club in St. Charles, Missouri. As a result, he had less income than was necessary to support his lifestyle and normal expenses.

Beginning in 2001, Neely borrowed some money from another person. Rather than treating that money as a loan, he created a fictional entity called "The St. Louis Investment Club" and treated the borrowed money as an investment in that entity. Thereafter, Neely began to solicit more people to invest in The St. Louis Investment Club by representing to investors that The St. Louis Investment Club made money through an investment he called the St. Charles Real Estate Investment Trusts (St. Charles REITS). The St. Charles REITS purportedly made money by buying and selling real estate. In reality, there was no investment club and no St. Charles REITS. The scheme succeeded for a while because he used new investor money to make interest payments due to old investors, i.e. a Ponzi scheme. Neely also used investor money to pay his own expenses.

Investors typically paid $3,000 for a share or unit in the club. Neely provided phoney records which gave the investors a false sense of security and belief that their principal had been invested as promised. As a result of the this scheme, investors lost more than $600,000.

KENNETH G. NEELY, St. Peters, Missouri, plead guilty last November to one felony count of mail fraud. He appeared before United States District Judge Jean C. Hamilton. Neely was ordered to pay $618,270 in restitution to the victims of the St. Louis Investment Club scheme.

This office would like to commend the Financial Industry Regulatory Authority (FINRA) for referring the case to our office for consideration, the U.S. Postal Inspection Service, the Federal Bureau of Investigation, and Assistant United States Attorney John Bodenhausen, who handled the case for the U.S. Attorney’s Office.