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Financial Advisor Sentenced in $21 Million Ponzi Scheme

May 19, 2017 Blog

The U.S. Department of Justice (DOJ) recently announced the sentencing of a Rhode Island financial advisor who admitted to misappropriating $21 million in investors’ funds and using other investors’ funds as collateral to secure a personal $2.5 million home loan for a waterfront property. Patrick Churchville, owner of ClearPath Wealth Management, LLC (“ClearPath”), will serve seven years in federal prison and three years of supervised release, following which he must perform 2,000 hours of community service.

The Securities and Exchange Commission (SEC) has also barred Churchville from acting as a broker or investment advisor, and his criminal sentence comes while at least two civil actions remain pending.

Failed Investments Lead to Misrepresentations and Misappropriation

According to the DOJ, Churchville and his investment firm invested approximately $18 million of investors’ funds in a Maryland entity called JER Receivables. Churchville made this investments over a period of approximately three and a half years between 2008 and 2011. However, by June 2010, Churchville had learned that the investments in JER Receivables were no longer generating returns, and that he had been misled by the company’s principals. The failed investments resulted in millions of dollars in losses for ClearPath Wealth Management, LLC’s clients.

Rather than disclosing the situation to these clients, Churchville undertook to cover up the losses, and continued to charge investment fees to existing clients while also soliciting new investors. He then began to operate a Ponzi scheme, using these new investors’ funds to pay “returns” to earlier investors. According to the DOJ, Churchville admitted to falsely telling these new investors that ClearPath’s prior investments in JER Receivables, “had been successful and produced high rates of return.”

Churchville’s sentence follows his guilty plea in April 2016 to five counts of wire fraud and one count of tax fraud.

What Investors Can Learn from the DOJ’s Investigation

According to FINRA’s BrokerCheck, Churchville had a long – and apparently distinguished – career as an investment advisor. Prior to perpetrating his fraudulent scheme with ClearPath, Churchville had stints with Oppenheimer & Co., UBS PaineWebber, Wachovia Securities and Morgan Stanley spanning nearly 15 years. He had not previously faced licensing or regulatory action by the SEC or FINRA, and he had not faced any customer disputes prior to 2013.

This case, among many others, underscores just how important it is for investors to play an active role in managing their investments, and how even those who take care to research their investment advisors can still find themselves victims of investment fraud. Fraudulent investment advisors will often go to great lengths to obscure their misdeeds, and investors will often need to act quickly upon discovering a fraudulent scam in order to maximize their chances of recovering their investment losses.

Are You Concerned about Investment Fraud? Call for a Free Consultation

If you are concerned that you may be a victim of investment fraud, you can contact the law offices of Zamansky LLC for a free consultation. To speak with a national stock fraud lawyer in confidence, call (212) 742-1414 or request an appointment online today.

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