FINRA Bars Broker for Operating Ponzi Scheme

As part of an ongoing investigation, the Financial Industry Regulatory Authority (FINRA) has permanently barred a former registered representative with AXA Advisors, LLC, for conducting a Ponzi scheme.

A FINRA news release said Kenneth George Neely of St. Louis conducted a Ponzi scheme involving at least 25 brokerage customers of AXA and his previous employer Stifel, Nicolaus & Co. Inc., as well as his own family, friends, and fellow church members. Neely induced customers to participate in a fictitious “St. Louis Investment Club” and to invest in the non-existent real estate investment trust, the “St. Charles REIT.”

Neely only stopped collecting funds when FINRA confronted him earlier this month. AXA terminated Neely’s employment upon his admission to FINRA staff that he converted customer funds for his personal use, according to FINRA.

In total, Neely improperly used more than $600,000 in investors’ assets. He returned about $300,000 of the funds back to some of the investors and converted more than half of the amount to his own personal use, FINRA said.

Background

To conceal the scheme from authorities, Neely typically had investors make payments to his wife in increments of $2,000 to $3,000, according to FINRA. He also prepared false invoices on his personal computer. The fraudulent invoices used the names of a fictitious "President" and "Secretary" and listed Neely's mother's home address as the address of the St. Louis Investment Club. Neely assured some investors by telling them he was on the investment club's board of directors.

In one instance, FINRA reported he stole $154,000 from a long-time friend and recent retiree, as well as an additional $10,000 from that friend's daughter. Neely had begun managing the friend's retirement assets in 2002, but by 2007 Neely was facing demands from clients who were seeking the return of their previously invested money, so he approached the friend with the promise of a high rate of return on the fraudulent REIT investment. Neely eventually returned $10,000 to the friend, bit used the balance of the investment to pay down personal debts, including country club and golf expenses.

In another instance, Neely induced a fellow church member to invest $35,000 of a retirement account, promising a 5% rate of return, FINRA found. He again used the balance to fund personal expenses. Neely's monthly country club dues and entertainment expenses sometimes exceeded $4,000.

"This individual was robbing Peter to pay Paul," said Susan L. Merrill, FINRA executive vice president and chief of enforcement, in the news release. "What is especially disturbing about this case is the exploitation of family and church relationships to defraud unsuspecting investors of their hard-earned savings to finance both the scheme and personal expenses."