The Charlottesville man arrested in March in connection with an $11 million Ponzi scheme is scheduled to enter a guilty plea Monday in U.S. District Court, according to court records and officials.
John M. Donnelly, 52, was charged with operating the scheme through three companies, Tower Analysis Inc., Nasco Tang Corp. and Nadia Capital Corp. The Securities and Exchange Commission and Commodity Futures Trading Commission made the charges.
Court records show that Donnelly is accused of wire fraud, which carries a maximum sentence of 20 to 30 years. To what exact charge Donnelly will plead guilty, however, is not known. He has not been formally indicted and his preliminary examination, at which prosecutors would present evidence to convince a judge that a crime occurred, was postponed with his bond hearing, court officials said.
Donnelly has been held in the Central Virginia Regional Jail in Orange since his arrest in March. John Davidson, Donnelly's attorney, declined comment pending the hearing.
A Ponzi scheme pays investors from the money they invested, or money invested by subsequent investors, and not from actual profits from any investment. The scheme promises short-term returns higher than other investments. It's named after Charles Ponzi, who operated a large-scale scam in the early 1900s, although similar investment ploys were reported in the 1850s.
A similar scheme operated by Bernard Madoff bilked investors of $65 billion and led to the December suicide of a major investor who lost $1.5 billion in the scam.
According to the SEC, Donnelly fraudulently obtained at least $11 million from as many as 31 investors via the sale of securities in the form of limited partnerships in his three investment funds.
The SEC accused Donnelly of telling investors his funds had a history of 22 percent or more profit per year, although he had done little securities trading, and none since 2002.
According to the CFTC complaint, Donnelly concealed the fraud by paying off certain investors using money invested by others. He then issued false account statements to fool investors into thinking they were earning large profits. Both agencies alleged that Donnelly paid himself $1 million in salary and fees over the past three years.
The U.S. District Court for the Western District of Virginia has frozen Donnelly's assets and those of his firms.
According to court records, Donnelly's largest investor deposited about $11.2 million into the Tower fund account and withdrew about $7.6 million between 2002 and 2009.
After seeing reports in January about financial frauds, the investor asked Donnelly to cash out his investments. Records show that Donnelly told the investor that he didn't have his money, that the financial statements were fake and no actual trades had ever been made.
The identities of Donnelly's investors have not been released.
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