U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 21538 / May 27, 2010
SEC v. John M. Donnelly, et al., Civil Action No. 03:09CV0015 (W.D. Va., filed March 11, 2009)
The Securities and Exchange Commission announced that on May 26, 2010, the Honorable Judge Glen E. Conrad, United States District Judge for the Western District of Virginia, entered a final judgment against John M. Donnelly ("Donnelly") and three entities that he controlled, Tower Analysis, Inc., Nasco Tang Corp., and Nadia Capital Corp. The final judgment permanently enjoins Donnelly and the other defendants from violating the antifraud provisions of the federal securities laws and orders them, along with two entity relief defendants controlled by Donnelly, to pay disgorgement and prejudgment interest totaling $3,929,003.
The Commission's civil injunctive action was filed on March 11, 2009, against Donnelly and the three defendant entities that he controlled, as well as three relief defendants, Blue Logic Operating Partners LP, Nadia Capital Operating Partners LP, and Deborah Donnelly. In its amended complaint, the Commission alleges that from at least 1998, Donnelly fraudulently raised at least $11 million from as many as thirty-one investors through the sale of securities in the form of limited partnership interests in three investment funds. The Commission further alleged that Donnelly orchestrated the scheme through three entities, Tower Analysis Inc., Nasco Tang Corp., and Nadia Capital Corp. Donnelly told investors that he would pool their funds to invest in, among other things, stock and bond index derivatives. However, Donnelly engaged in almost no securities trading. The Commission further alleged that Donnelly instead used investor funds to repay other investors, and paid himself approximately $1 million in salary and fees during the last three years of the scheme. The Commission alleges that the relief defendants received funds that were derived from profits obtained by Donnelly as a result of his fraudulent conduct.
Donnelly and the three entity defendants consented to the entry of a final judgment without admitting or denying the allegations in the Commission's complaint. The final judgment permanently enjoins them from future violations of Section 17(a) of the Securities Act of 1933, and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, which are general anti-fraud provisions of the federal securities laws. The final judgment also orders them, along with relief defendants Blue Logic Operating Partners LP and Nadia Capital Operating Partners LP, to disgorge $3,838,790 together with prejudgment interest of $90,213, with payment of that amount to be deemed satisfied by an order of restitution that was entered in the parallel criminal case against John Donnelly. In the criminal case, Donnelly pled guilty to charges of wire fraud, securities fraud, fraud in connection with futures contracts, and impeding administration of internal revenue laws, and was sentenced to ninety months in prison and ordered to pay restitution of $5.435 million. U.S. v. John Donnelly, No. 03:09-CR-00015 (W.D. Va.).
The Court also entered a final judgment against Donnelly's wife, relief defendant Deborah Donnelly. The judgment, to which Ms. Donnelly consented, orders her to relinquish her interest in certain assets and to pay a portion of the proceeds from the sale of the Donnellys' home towards the restitution order in the criminal case. In addition, the Court approved the Commission's motion to amend the complaint to add Samuel P. Fleming and Fleming-AOD, Inc. as relief defendants. Fleming and Fleming-AOD consented to the entry of a final judgment ordering them to pay jointly and severally disgorgement of $613,617, plus prejudgment interest of $65,717.89. The Commission's amended complaint does not allege that the relief defendants committed violations of the federal securities laws. All of the funds collected pursuant to these settlements will be distributed to harmed investors through the restitution fund established in the parallel criminal case.
The Commission acknowledges the assistance of the United States Attorney's Office for the Western District of Virginia, the Federal Bureau of Investigation, the Internal Revenue Service, the U.S. Department of Justice Tax Division, and the U.S. Commodity Futures Trading Commission.