Broker admits to Ponzi scheme, pleads guilty to mail fraud

By Andrew Dys - adys@heraldonline.com

COLUMBIA -- After at least 15 years and more than $2.5 million of phony investments stolen from at least 35 people, Gene Sullivan admitted Monday in federal court that he spent as much as $1.2 million on himself.

Sullivan, 63, a Rock Hill insurance agent and broker for New York Life for more than 30 years, pleaded guilty in Columbia to one count of mail fraud.

He could receive up to 20 years in prison during a sentencing hearing scheduled for April 7 before U.S. District Court Judge Matthew J. Perry Jr., who accepted the plea Monday.

Sullivan was charged in a Ponzi scheme where he used money paid to him for fraudulent investments. The scam unraveled after a daughter of one elderly woman who demanded records from Sullivan for tax purposes complained to New York Life in late 2008, Assistant U.S. Attorney Nathan Williams said in court Monday. New York Life investigators uncovered the fraud; then “Sullivan admitted it to New York Life and the FBI,” Williams said in court Monday.

In at least two interviews, Sullivan showed investigators records where he admitted the scam, Williams said.

Sullivan's scheme was simple — he took money from people he knew. In court, Judge Matthew J. Perry Jr. reeled off names of phony investments Sullivan used to draw people into his scheme: “private placement, promissory note, security note, private annuity, insured financial products” and more. The money went to Sullivan's personal bank account, Williams said.

Most of the victims were widows or children of people Sullivan had sold life insurance policies to, Williams said in court. Sullivan would receive the money from people who collected life insurance payouts after the death of loved ones. He promised interest from 6 percent to 12 percent, according to federal brokerage documents.

Sullivan had been charged with seven counts of mail fraud from money orders he sent to investors in October 2008, but federal prosecutors agreed to a plea deal on a single count from Oct. 14, 2008.

Sullivan had been out on a $100,000 unsecured bond since his arraignment and first court appearance in September, when he pleaded not guilty. After Sullivan pleaded guilty, Williams told Perry that Sullivan had reported for every court appearance so prosecutors did not oppose him staying out on bond pending sentencing.

Sullivan did not offer the court any reasons for the scam. He told Perry that he understood he had to pay restitution to those Perry said in court were “harmed by your hands.” Sullivan's lawyer, Jim Griffin of Columbia, declined to allow Sullivan to give a statement as Sullivan left the courtroom.

A Ponzi scheme generally involves one person collecting money from new investors and using it to pay purported returns to earlier investors rather than investing or managing the money as promised.

The criminal action against Sullivan dates to 1995, but a federal brokerage oversight agreement claimed the scam started in 1988, and Sullivan raked in more than $3.7 million.

In August, when the Financial Industry Regulatory Authority banned Sullivan from working as a broker, both FINRA and Sullivan signed an agreement where Sullivan admitted that the scam started more than 20 years ago and that he continued bilking investors to pay off mounting personal debts. FINRA claimed that some of the victims had Alzheimer's disease, and at least one was mentally impaired.

Sullivan paid back about $1.4 million to investors over the years, but he kept between $900,000 and $1.2 million. He used the money for cars, a house, private educations for his children, at least one wedding for a child and more, documents show.

New York Life fired Sullivan after the allegations emerged in late 2008, then paid back more than $2 million to many of those who lost money. The company filed a lawsuit against Sullivan saying it had no knowledge of the scam and that the alleged products did not exist. The lawsuit demanded New York Life get the $2 million back from Sullivan, after which Sullivan filed for bankruptcy.