A Somerset County, New Jersey man pleaded guilty today to one count of securities fraud and one count of money laundering, admitting that he defrauded victims of an investment scheme by misusing their capital contributions and misrepresenting the performance of their investments, U.S. Attorney Paul J. Fishman announced.
David Connolly, 51, of Watchung, New Jersey, pleaded guilty to counts one and 10 of a superseding indictment before U.S. District Judge William J. Martini in Newark federal court…
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. Although the investment properties experienced significant negative cash flow, Connolly told investors they were performing well.
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.
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