- Missouri Investor Protection Center
- Investor Education
- Check Out Your Broker or Adviser
- File a Complaint
- Statutes and Regulations
- Investor Protection & Securities Newsletter
- Contact Us
Securities News Releases
Wednesday, November 04, 2009
Contact: Laura Egerdal: Abe Rakov, (573) 526-0949
Carnahan Uncovers Ponzi Scheme in Saint Charles
Broker Raised Over $640,000 for Nonexistent Real Estate Investment Trust
Jefferson City, MO - Secretary of State Robin Carnahan's Office today shut down a Ponzi scheme set up by former St. Louis-area broker Kenneth Neely. According to the cease and desist order, Neely directed his clients from two different brokerage firms to invest in a nonexistent real estate investment trust.
Promising "no risk" and high rates of return, Neely allegedly raised more than $640,000 from at least 16 investors in Missouri, California and Maryland. Although he was employed with Stifel, Nicolaus and later with AXA Advisors, Neely advised his clients to invest through his "St. Louis Investment Club" and to make checks payable to Neely or his wife. The practice of selling investments off the books of a firm, commonly known as "selling away," is a violation of Missouri Securities Law and is grounds to revoke a broker's license in the state.
"Investors should be extremely cautious if a broker promises unusually high returns, especially through an investment outside of his firm," Carnahan said. "Making one call to the Investor Protection Hotline to check out an investment could help protect your savings."
According to the order, Neely began raising money in January 2002. To continue his scheme, Neely used some of the funds raised from new investors to pay "investment returns" to other investors. This is a key characteristic of a Ponzi scheme, which gained national notoriety from the Bernie Madoff case in 2008.
"You really can't put full trust in any individual that manages your life savings, other than yourself, without researching them first," said Lynne Smiley, a California resident who invested with Neely.
Carnahan's Securities Division began its investigation into Neely after receiving information from his most recently employer, AXA Advisors. Neither Neely's "St. Louis Investment Club" nor the St. Charles real estate investment trust was registered in Missouri to sell securities or offer advice regarding securities, which is required by state law. Additionally, Neely was recently barred by the Financial Industry Regulatory Authority ("FINRA") from associating with any member firm.
Neely has 30 days to respond to the cease and desist order (which can be found online here) and request a hearing. Neither Stifel, Nicolaus & Company, Inc., nor AXA Advisors, LLC, are named respondents in the order issued today.
For more information regarding investments and fraud protection, or for information regarding a company or representative, call the Missouri Investor Hotline toll-free at 1-800-721-7996 or visit the Secretary of State's web site at www.sos.mo.gov/securities.