The Commission filed another action in which admissions were required as part of the settlement. The action centeres on an investment adviser who misappropriated just under $2 million from his clients. As part of the settlement he admitted the theft. SEC v. Donnelly, Civil Action No. 15 6873 (E.D. Pa. Filed October 19, 2015).

Michael Donnelly has been a registered investment adviser and registered representative since the mid-1990s. He formed Donnelly Advisors Group, Inc. in 2005 where he was the President, CEO and sole employee. Two years later he formed a new firm called Donnelly Steen & Co. which did business as Coastal Investment Advisors, Inc. In 2012 Coastal Equities, Inc., a registered broker-dealer was acquired. Mr. Donnelly became president of that firm.

Mr. Donnelly began misappropriating client funds in 2007. To effectuate his scheme he typically told clients that he planned to invest their funds in various financial instruments. He then had the client write a check to Donnelly Advisors Group to fund the transaction. Most had been clients for years and trusted him. Clients were familiar with the Donnelly Advisors Group and thus did not question the point. At the same time using that name shielded the transactions from Donnelly & Steen and Coastal IA. The funds were then misappropriated. Subsequently, Mr. Donnelly would tell the clients that the investments had been made and were doing fine. Frequently documents were fabricated to support the lies told to the client.

From 2007 through 2014 Mr. Donnelly defrauded at least thirteen clients. Most of the clients were in their 80s. The amounts ranged from a low of $25,000 to a high of $800,000, totaling $1,990,150.54.

The scheme began to unravel with a transaction for Victims A&B in late 2008. Mr. Donnelly advised the couple that he intended to invest their funds in one-year institutional CDs. He claimed those instruments would be issued by PNC Bank and Bank of America. The Victims initially wrote two checks payable to Donnelly Advisors for $100,000 each. Over the next 16 months the couple wrote six additional checks. None of the investments were made. Nevertheless, over the next five years Mr. Donnelly prepared and sent the couple account statements reflecting the investments.

In July 2014 Victims A&B told Mr. Donnelly that they were moving their investments to a different adviser. To conceal his wrongful conduct the adviser misappropriated funds from another client. In connection with that transaction he had the client wire funds to a private business account of a Coastal IA employee. Subsequently, that firm’s senior officers learned about the transactions and terminated Mr. Donnelly.

The Commission’s complaint alleges violations of Securities Act Section 17(a) and Exchange Act Section 10(b).

Mr. Donnelly settled the charges by admitting the conduct and consenting to the entry of a permanent injunction prohibiting future violations of the Sections cited in the complaint. In addition, he was ordered to pay disgorgement of $1.9 million and prejudgment interest. Those obligations will be deemed satisfied by the entry of an order of restitution in the parallel criminal case. He also consented to the entry of an order permanently barring him from the securities business.