The Securities and Exchange Commission charged an ex-Merrill Lynch representative with conducting a $5.2 million fraudulent securities offering that the regulator claimed included a “Ponzi-like payments” scheme.
Merrill Lynch did not immediately comment Monday, four days after the SEC filed a complaint against former registered representative Phillip W. Conley in U.S. District Court for the Northern District of West Virginia.
The complaint alleged that, between January 2014 and September 2018, Conley induced investors to buy securities “by making a series of materially false and misleading statements and omissions concerning the legitimacy of the investments and the use of investor proceeds.”
Conley allegedly failed to invest those proceeds as promised and instead commingled investor funds in bank accounts that he controlled, the SEC said. Conley “used the majority of the funds to support his lavish lifestyle, including private jet charters, luxury automobiles, opulent jewelry and clothing purchases, and to repay other investors with Ponzi-like payments,” the regulator said.
Conley raised the funds from “at least 20 investors through the fraudulent offer and sale of securities,” convincing “some of his most trusting investors, including pastors and church congregants, to invest their money with one or more of the entities he controlled while knowing the investments were not legitimate, that he would make no securities investments on their behalf, and would instead spend their money like it was his own,” the SEC said.
He allegedly “perpetrated the fraud by claiming that he managed multiple private investment funds through his company,” ALPAX LLC, and affiliated shell companies, the SEC said.
The SEC charged Conley with violations of the antifraud provisions of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, and the Investment Advisers Act of 1940 and Rule 206(4)-8.
The SEC sought a permanent injunction, disgorgement of ill-gotten gains, prejudgment interest and civil monetary penalties, it said.
On Dec. 3, 2015, the Financial Industry Regulatory Authority suspended Conley from association with any broker-dealer in any capacity for failing to comply with a FINRA arbitration award, the SEC pointed out.
Conley was with Merrill Lynch from 2012 until 2014, according to his profile on FINRA’s BrokerCheck website, which included five disclosures over the course of his seven years in the industry. Merrill Lynch was the last company that he worked for in the industry before FINRA suspended him, according to BrokerCheck.
As part of the FINRA arbitration dispute, Merrill Lynch had requested Conley pay $699,763 in compensatory damages, plus unspecified interest and legal fees for breach of a promissory note and unjust enrichment. Public arbitrator G. Daniel Carney ruled in the firm’s favor June 1, 2015, awarding Merrill Lynch the full amount, plus 1.5% interest per year and $9,700 in legal and other fees, according to a FINRA Dispute Resolution award filing posted at its website.