Sullivan sentenced in Ponzi Scheme

Michael Paul Sullivan, the South Hill man who entered pleas of guilty to 15 counts of embezzlement and one count of money laundering in October after running what has been described as the biggest Ponzi Scheme ever seen in Southside Virginia has been sentenced to 160 years in prison for his crimes.
Appearing before Judge Leslie Osborn in Mecklenburg on Friday, Sullivan was sentenced to ten years on each of the 16 charges but will serve an active term of five years for the first count of embezzlement with the remaining time suspended on condition of his good behavior for 100 years following his release from custody, an undetermined stay on supervised probation and payment of the remaining $816,815.92 restitution due his victims within 20 years.
While Defense Attorney Patrick Hanes had requested a delay before Sullivan was to report to begin serving his sentence to allow him to continue working on arrangements to continue paying off his victims, Judge Osborn ordered Sullivan to begin serving his sentence on Thursday.
Hanes also made a request for Sullivan to be allowed to take part in a work release program. Judge Osborn explained that while that decision would be up to the DOC, he would not object to Sullivan serving his final two years in a work release program.
Sullivan, who opened an investment business along with an educational business in 2009 reportedly did well during his first few years of operation before running into financial problems and embezzling something over $1.4 million from 15 clients. Although he had presented himself as a licensed investment broker, he did not possess a license.
Commonwealth Attorney Allen Nash told the court that Sullivan had done a great job of presenting himself to clients, showcasing his work, his experience and skill. He developed, said Nash, a reputation as someone who could make other people money. He used that reputation and trust to prey on people who were not only his clients but his friends.
“The monetary loss is terrible but the lost of trust is also immense,” said Nash.
The problems started, said Nash, in 2013. Prior to that, said Nash, the business had been above board. However, said Nash, in 2013 business slowed down and it appeared that Sullivan’s standard of living “outpaced legitimate income.” This, said Nash, “resulted in the most significant Ponzi Scheme Southside has ever seen, or hopefully will ever see.”
According to Nash, it was during this period that Sullivan began approaching people at the places he frequented, family friends and “used them for nothing but dollar signs.” He would tell potential clients how well the business was doing and telling them of the enormous returns they could get from their investments. At first, explained Nash, he required no minimums but gradually, he began looking at a minimum of $50,000.” And while he told his clients that he was a licensed security trader, he was not licensed to trade at those levels.
Nash read off a list of the amounts taken from would-be clients with amounts ranging from $50,000 to, in one case, nearly $600,000. In total, said Nash, it appeared that some 15 clients had been taken for upwards of $1.43 million.
There was hardly any day trading going on at that point, explained Nash. Monies wound up transferred to his educational business, which triggered the money laundering charge. To keep the Ponzi Scheme going, Sullivan had to keep soliciting money and in this small, rural area, he went back to his same clients.
“That is where the horror stories you read about started,” said Nash. One client invested every cent he had. Another mortgaged his paid for home to invest the money. Still another used his late father’s inheritance to invest, trying to secure a good future for his family. Sullivan, meanwhile, sent false statements to his clients, showing they were making 20 percent and more on their investments.
Once rumors began circulating that there were problems and possibly an investigation going on, Sullivan could have “come clean” said Nash. Instead, he lied about the circumstances and, in once case said Nash, managed to con the victim out of another $20,000.
“I think that paints pretty clearly the type of person he is and definitely was then,” said Nash “I know Mecklenburg County has never seen anything like this. We never expected our own version of Bernie Madoff. But this is worse. These were not anonymous people. These were his friends and he was putting them all behind the 8-ball.”
“And so now what?” asked Nash. “What do we do with someone who stole $1.4 million?”
Nash said that once the scheme broke down, Sullivan has been able to “make quite a bit of restitution.” However, there remains a sizable amount of money left to be repaid. Nash also admitted that Sullivan had sold off a good amount of personal property to go toward repaying the victims. However, he said, the crime had been committed and sentencing guidelines, he said, were not clear because of a “glitch.” Not enough such cases have been heard to actually establish guidelines for investment fraud crimes of this sort. Counting the crimes as embezzlement, Nash said that due to the impact on the victims and the potential future earning possibility, therefore increasing the chances that he could in time make his victims whole, Nash told the court he was asking for 10 years on each of the charges for a total sentence of 160 years with all suspended but five years on the first embezzlement charge and five years on the money laundering charge, leaving an active sentence of 10 years with the remaining time suspended on condition of 150 years of good behavior following release, an unspecified length of time on supervised probation and payment of the outstanding restitution.
Defense Attorney Patrick Hanes agreed with much of what Nash had said. He did, however, add that the period in question represents a total period of approximately three years out of an otherwise spotless life and reputation.
Hanes told the court that Sullivan had “gotten into a hole and then kept on digging. He lied and he stole. There’s no doubt about it. And that is why he’s here today,” said Hanes. “His life is different. His reputation shattered. His business is gone. He knows the kind on consequences he’s facing. And that is where he is today.”
Hanes said that from the start, Sullivan had cooperated with authorities and had reimbursed his victims more than $600,000. The business, he pointed out, had continued until the very end in trying to make the money to return to his clients. He added that he and his client had hopes he would be allowed to try to continue working to repay those who had trusted him.
Responding, Nash said that he agrees in part that a man’s character shows in how they behave when caught but would argue that their true character is shown when no one is watching. He said that he feels Sullivan’s actions in telling clients that rumors about the investigation were false and asking for additional money was also indicative of his character. He repeated that he felt the sentence requested was appropriate and reasonable.
Addressing Judge Osborn before final sentencing, a tearful Sullivan said there was no excuse nor justification for what he had done. He admitted that he took clients money for his own use. He said he didn’t want to admit it but “that’s what happened and I can’t change it. I do regret it.”
Sullivan told the court that he could not make any excuse but could try to explain what happened so the court could understand it. It had never been his intention, he said, to take money from clients. He had studied investing and learned a little.
“What was a passion become and obsession,” he said.
Gaining pride and confidence, he said he wanted to share with his friends. Early on, he said, he had good results but the collapse “snuck up on me.” He said he had been ashamed and embarrassed to admit his failure and took the money, telling himself that he would replace it. Although the downward spiral was ongoing, Sullivan said he continued to ignore it until it was, he realized, next to impossible.
“I kept taking the money and told them what they wanted to hear. I felt trapped.”
He said he could have, and should have taken other options. Now, he said, he wants to accept his responsibility and make things “as right as possible.” He promised to pay back every cent and to learn from the mistakes. Openly sobbing, Sullivan said that he does not want his two boys to look back at him today, a father who wouldn’t admit his mistakes. With God’s help, he said, he could and would recover.
Judge Osborn asked what had become of the missing $800,000 plus. Sullivan said some was trading losses. Another portion went to his education business and salary.
Judge Osborn said that in nearly 18 years on the bench, this was the largest and possibly the only Ponzi Scheme he had seen. He added that Sullivan was a unique case because prior to this, he had had absolutely no criminal history and a long record of employment and these were positives, a big problem was the sheer amount involved. Also, said Judge Osborn, embezzlement is not like many other types of crime but represents a lot of crimes over a period of years. Broken down, he said, there were hundreds of individual thefts, possibly more.
Character references and letters of support from people in the community, said Judge Osborn, were impressive but he was not sure most people really understood the scope of the crime or the hurt caused. He cited the gentleman who mortgaged his paid for home as well as the other victim who lost their entire retirement.
After weighing all the facts in the case, Judge Osborn sentenced Sullivan to 10 years on each of the 16 charges but suspended all but five years on the first embezzlement charge pending his good behavior for a period on 100 years following his release. Sullivan will also be required to undergo an undetermined period of supervised probation and will be required to complete making full restitution to his victims within 20 years.
Sullivan was remanded to jail at the end of the sentencing hearing.