The former head of a Delaware RIA, who worked for 10 firms in less than 20 years, will have to find a new occupation.
Michael Donnelly, the former president of Coastal Investment Advisors, a Wilmington, Del.-based RIA with an affiliated broker-dealer, has agreed to settle charges with the SEC that he stole nearly $2 million from his advisory clients and brokerage customers from 2007 through August 2014.
Already permanently barred by FINRA from acting as a broker, Donnelly has also consented to an SEC order permanently barring him from the securities industry.
Donnelly took funds from elderly and unsophisticated investors, according to the SEC’s complaint filed in federal district court in Philadelphia, and instead of investing the money as promised, he used the funds to pay for his own expenses, including rent, car payments, golf club membership dues and his children’s private school tuition.
Donnelly concealed his scheme by providing investors with false account statements, trade confirmations, and other bogus information that purportedly reflected their investment holdings, the SEC said in a statement, adding that Donnelly repeatedly told investors that their fictitious investments were performing well.
“Donnelly stole from his clients over a period of several years and then repeatedly lied to cover up his theft,” said Sharon Binger, director of the SEC’s Philadelphia Regional Office. “We will aggressively pursue and prosecute industry professionals like Donnelly who abuse their positions of trust to take advantage of their unsuspecting clients.”
CRIMINAL CHARGES FILED
In a parallel action, the U.S. Attorney’s Office for the Eastern District of Pennsylvania announced criminal charges against Donnelly relating to the same misconduct.
Donnelly, who lives in Lecanto, Fla., agreed to settle the SEC’s charges by admitting to defrauding his clients and consenting to a final judgment that permanently enjoins him from future violations of the anti-fraud provisions of the federal securities laws.
He agreed to disgorge his gains of $1.9 million and prejudgment interest of $365,723, which will be deemed satisfied upon the entry of an order of restitution in the parallel criminal case.
Efforts to reach Donnelly for comment were unsuccessful. A number listed for his attorney in the proceedings was disconnected.
CAREER HAD MANY STOPS
Donnelly began his career in 1992 and worked for nine advisory firms before joining Coastal Investment Advisors in 17 years later. Two of those firms, Thomas James Associates in Rochester, N.Y. and American Investment Services of Oklahoma City have been expelled from FINRA.
In 1997, Donnelly left Keystone Brokerage of Williamsport, Pa., after allegations that he violated firm policy. He was involved in customer disputes while at American Investment Services in 2001 and the Investment Center of Bedminster, N.J., in 2005 that were both closed with no action taken.
Donnelly joined Coastal in October 2009 and left last September.
COASTAL'S RESPONSE
"We're glad this has come to a resolution," says Coastal President Charles Reiling. "The firm discovered Mr. Donnelly's malfeasance [last September] and immediately reported it to the appropriate regulatory authorities and law enforcement. He was terminated immediately."
Asked if the firm was being sued by any of Donnelly's former clients, Reiling said the firm's policy is not to comment on litigation or arbitration.
According to its latest SEC Form ADV, Coastal Investment Advisors has just under $400,000 in assets under management and said it provided financial planning services to ten or less of its approximately 1,000 clients.
The firm has offices in Cincinnati; New City, N.Y.; York, Pa.; and Chester Springs, Pa.; in addition to its Wilmington headquarters.
The SEC’s investigation, which was assisted by the U.S. Attorney’s Office for the Eastern District of Pennsylvania and the Federal Bureau of Investigation, was conducted by Burk Burnett and Scott Thompson of the Philadelphia Regional Office and supervised by G. Jeffrey Boujoukos.
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