FINRA Bars Brokers in Multimillion-Dollar Ponzi Schemes

The Financial Industry Regulatory Authority (FINRA) has permanently barred two brokers, Oren Eugene Sullivan, Jr., of Rock Hill, South Carolina, and William Walter Spencer, Sr., of Franklin, Tennessee, for running Ponzi schemes targeting a wide range of investors, including the elderly and mentally and physically impaired.

FINRA said Sullivan, a broker for NYLife Securities, misappropriated approximately $3.7 million in a decades-long Ponzi scheme involving more than 30 clients, including 15 widows, two Alzheimer’s victims, and an individual with developmental impairments. At least eight of the clients were older than 80 and another four were older than 70. Many of the clients considered Sullivan a close friend.

Spencer allegedly “borrowed” nearly $2 million from elderly members of his church and from customers of his broker/dealer, Wiley Bros.-Aintree Capital, LLC, according to FINRA.

“The protection of seniors and other vulnerable investors from unscrupulous brokers remains one of FINRA’s highest priorities, and we will continue to identify and expel those within our jurisdiction who take unfair advantage of their clients,” said Susan L. Merrill, FINRA’s executive vice president and chief of enforcement. “The misconduct of these brokers was nothing short of egregious—and their financial exploitation of the elderly, the infirm and people who considered them trusted friends shocks the conscience.”

Amid financial turbulence, Ponzi operations have been collapsing at record speeds (see “Recession Foils Ponzi Schemes”). As was the case with Bernard Madoff, it is common for Ponzi schemes to involve friends, family, and church members (see “FINRA Bars Broker for Operating Ponzi Scheme” and “Ponzi Schemes: Side by Side”).

Background 

FINRA found that from late 1988 to October 2008, Sullivan obtained money for personal use by leading his victims to falsely believe that they were investing in promissory notes or other legitimate financial products issued by NYLife or its affiliates.

In exchange for the money he took from customers, Sullivan usually provided a one-page "note" stating the amount of principal and promising an annual interest rate, ranging from 6% to 12%. The borrower was listed as a made-up entity called IFP, standing for “insurance financial product” or “insurance financial professional.”

Clients wrote out checks to “IFP-NYL” or “IFP-NYLife,” which Sullivan was allowed to deposit into his own accounts. In total, Sullivan obtained approximately $3.7 million from his scheme and, at the time he was caught, owed approximately $2.2 million, which was since paid back to customers by NYLife.

Sullivan’s vast Ponzi scheme unraveled when a customer’s daughter became suspicious, leading to an internal investigation by Sullivan’s superiors.

In the case of Spencer, who ran a Ponzi scheme from December 1997 to May 2008, investors were also induced to invest in promissory notes. The notes falsely promised rates of return 10% to 12% higher than rates available on traditional investments, according to FINRA.

Overall, there were 234 transactions and most of the investors were elderly members of Spencer’s church community. All of the individuals were of “modest means,” such as a 62-year-old school bus driver who loaned Spencer $60,000. Spencer failed to repay many of the individuals as promised and used the proceeds of new loans to satisfy existing loans, FINRA found.

Both Spencer and Sullivan consented to the entry of FINRA's findings without admitting or denying charges.