Multi-Million-Dollar Real Estate Ponzi Schemer Indicted for Fraud and Money Laundering

NEWARK—A Somerset County, New Jersey man was arrested today after being indicted by a federal grand jury on charges that he ran an investment scheme that defrauded victims of at least $9 million, U.S. Attorney Paul J. Fishman announced.

David Connolly, 50, of Watchung, New Jersey, was charged in the 16-count indictment with one count of securities fraud, five counts of mail fraud, three counts of wire fraud, and seven counts of money laundering. The indictment was returned May 16, 2012. In a parallel investigation, the Securities and Exchange Commission today filed civil charges against Connolly for securities fraud.

According to documents filed in this case:

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.

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.

If convicted of the securities fraud charge, Connolly faces a maximum potential penalty of 20 years in prison and a $5 million fine. If convicted on the mail fraud or wire fraud charges, Connolly faces a maximum potential penalty of 20 years in prison and a $250,000 fine. Connolly also faces a maximum potential penalty of 10 years in prison and a $250,000 fine on the money laundering charges.

U.S. Attorney Fishman credited special agents of the FBI, under the direction of Special Agent in Charge Michael B. Ward in Newark, for the investigation leading to today’s indictment. He also thanked special agents of IRS-Criminal Investigation, under the direction of Acting Special Agent in Charge JoAnn S. Zuniga, for their important contributions to the investigation.

The government is represented by Assistant U.S. Attorneys Charlton A. Rugg and Aaron H. Mendelsohn of the Economic Crimes Unit.

The charges and allegations contained in the indictment are merely accusations, and the defendant is considered innocent unless and until proven guilty.

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.