Former President of Coastal Investment Advisors Admits to Defrauding Investors

Michael Donnelly, the former president of Wilmington, Delaware-based Coastal Investment Advisors Inc. and its affiliated broker-dealer, has agreed to settle charges that he stole nearly $2 million from his advisory clients and brokerage customers.

According to the SEC’s complaint filed in federal district court in Philadelphia, Donnelly took funds from elderly and unsophisticated investors, and instead of investing it, paid for his own expenses, including rent, car payments, golf club membership dues, and his children’s private school tuition. Donnelly concealed his scheme by providing investors with false account statements, trade confirmations, and other bogus information that purportedly reflected their investment holdings and repeatedly told investors that their fictitious “investments” were performing well. The scheme ran from 2007 through August 2014.

“Donnelly stole from his clients over a period of several years and then repeatedly lied to cover up his theft,” said Sharon B. Binger, director of the SEC’s Philadelphia regional office. “We will aggressively pursue and prosecute industry professionals like Donnelly who abuse their positions of trust to take advantage of their unsuspecting clients.”

Donnelly, who lives in Lecanto, Florida, agreed to settle the SEC’s charges by admitting to defrauding his clients and consenting to a final judgment that permanently enjoins him from future violations of the antifraud provisions of the federal securities laws. Donnelly agreed to disgorge his ill-gotten gains of $1.9 million and prejudgment interest of $365,723, which will be deemed satisfied upon the entry of an order of restitution in the parallel criminal case. He also consented to an SEC order permanently barring him from the securities industry.

In a parallel action, the U.S. Attorney’s Office for the Eastern District of Pennsylvania also announced criminal charges against Donnelly relating to the same misconduct.