A Watchung man was arrested Thursday on a 16-count indictment that alleges he ran a real estate investment scheme that netted at least $9 million, the U.S. Attorney's Office said.
David Connolly, 50, was indicted Wednesday by a federal grand jury on one count of securities fraud, five counts of mail fraud, three counts of wire fraud and seven counts of money laundering.
Connolly is expected to appear Thursday afternoon before U.S. Magistrate Judge Michael A. Shipp, in Newark federal court.
In a parallel investigation, the Securities and Exchange Commission filed on Thursday civil charges against Connolly for securities fraud, U.S. Attorney Paul J. Fishman said.
The investigation alleges that from at least 2006 through October 2009, Connolly orchestrated a real estate investment fraud scheme in which he took in more than $50 million from more than 200 victims, causing losses of at least $9 million.
To induce victims to invest, Connolly made various types of materially false and misleading statements and omissions, the U.S. Attorney's Office said.
He allegedly told victims their money would be used to purchase a specific property, and the property would generate rental income that would be used to pay investors monthly distributions, the U.S. Attorney's Office said.
Connolly also allegedly told victims their money would be held in escrow until the closing of a purported real estate transaction and each property would be financially independent from all the others, the U.S. Attorney's Office said.
Connolly misrepresented the amount of equity victims had in the properties, the condition of the properties, and the financial performance of the properties, the U.S. Attorney's Office said.
Connolly is accused of taking significant portions of his victims’ money, which had been provided for specific real estate transactions, and used it for other purposes, without disclosing the diversions of funds to victims, the U.S. Attorney's Office said.
These included funding unrelated real estate transactions in which Connolly was engaged; paying prior victims; and paying himself, the U.S. Attorney's Office alleges.
The scheme collapsed in the summer of 2009, after Connolly began to default on the mortgage payments for the investment properties, the U.S. Attorney's Office said.
If convicted of the securities fraud charge, Connolly faces a maximum potential penalty of 20 years in prison and a $5 million fine. If convicted on the mail fraud or wire fraud charges, Connolly faces a maximum potential penalty of 20 years in prison and a $250,000 fine.
He also faces a maximum potential penalty of 10 years in prison and a $250,000 fine on the money laundering charges.
Fishman credited special agents of the FBI, under the direction of Special Agent in Charge Michael B. Ward in Newark, for the investigation leading to the indictment.