Western Springs investment adviser accused of defrauding his clients
SUN-TIMES MEDIA WIRE November 29, 2012 12:46PM
Updated: January 1, 2013 6:25AM
A Chicago-based investment adviser promised clients returns that would “beat the market” but used their money to repay his debts instead, federal regulators claim.
The Securities and Exchange Commission alleges Joseph J. Hennessy, 51, of Western Springs, and Resources Planning Group, an Indiana corporation headquartered in Chicago, raised more than $1.3 million by misrepresenting that the Midwest Opportunity Fund could offer high returns. The SEC claims the fund was actually failing and investor money was used to repay promissory notes to earlier investors.
“Hennessy made these promises, but betrayed his clients and others by using their money to save himself from financial ruin,” Marshall Sprung, deputy chief of the SEC enforcement division’s asset management unit, said in a statement.
According to the SEC complaint, filed Thursday in Chicago, Hennessy preyed on clients in a variety of ways.
One of the victims of the fraud was a widow in her 60s who depended on Hennessy to manage her life savings, but twice he forged documents to transfer a total of $100,000 of her money into the failing fund, according to the complaint.
And in May 2009, a month after a portfolio company for the fund was placed in receivership, Hennessy persuaded another client to invest $157,000 of his retirement funds into a fund promissory note, calling it good alternative to investing in the market, the complaint said.
According to the SEC, Hennessy financed the fund’s acquisition of its largest portfolio company in 2007 in part by having the fund issue $1.65 million in promissory notes, all of which he personally guaranteed. But the company was unable to pay management fees, so from September 2007 to March 2010, Hennessy raised $1.36 million from Resources Planning Group clients and other investors to make payments.
He never told investors about the fund’s poor financial condition or that their money was repaying promissory notes he’d personally guaranteed, a release from the SEC said. In all, he used at least $641,408 in new investor money to make partial payments to note holders, according to the SEC.