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Univ. of Toledo College of Law

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Wednesday, March 11, 2009

SEC Takes Action Against Alleged Ponzi Scheme in Virginia

The SEC filed a complaint today in the United States District Court for the Western District of Virginia against John M. Donnelly (Donnelly), a resident of Charlottesville, Virginia, and his firms, Tower Analysis, Inc., Nasco Tang Corp., and Nadia Capital Corp., alleging that they are conducting a multi-million dollar Ponzi scheme. The Commission also filed an application for an ex parte temporary restraining order, asset freeze, and other emergency relief against Donnelly and his entities.

According to the Commission's complaint, from at least 1998, Donnelly fraudulently obtained at least $11 million from as many as 31 investors through the sale of securities in the form of limited partnership interests in three investment funds. The SEC alleges that Donnelly orchestrated the scheme through three entities, Tower Analysis Inc., Nasco Tang Corp., and Nadia Capital Corp. The complaint alleges that Donnelly told investors that he would pool their funds to invest in, among other things, stock and bond index derivatives. According to the complaint, despite representations to investors that he had generated annual returns of as much as 22%, Donnelly has done almost no securities trading, and none since 2002. The complaint alleges that instead of using investor funds to execute trades, Donnelly used investor funds to repay other investors, and paid himself approximately $1 million in salary and fees during the last three years alone. The complaint also alleges that Donnelly has been soliciting investors for a new fund called Nadia Capital Partners, LP based on misrepresentations about his past trading results.

On the Commission's application, the court today entered a temporary restraining order enjoining Donnelly, Tower Analysis, Nasco Tang, and Nadia Capital from future violations of Section 17(a) of the Securities Act of 1933, and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. In addition, the court entered an order freezing all assets under the control of Donnelly and his firms.

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