Advisor Convicted in Ponzi Scheme to Pay $33M Fine

A Rhode Island investment advisor has been ordered to pay $33 million after a Rhode Island federal court ruled in favor of the Securities and Exchange Commission, marking the final chapter in the commission’s charges stemming from his role in a $27 million Ponzi scheme.

Patrick Churchville, of Barrington, R.I., was previously convicted in a separate case brought by the Department of Justice of five counts of wire fraud and one count of tax fraud and was sentenced to seven years in prison for the scheme, in which he and his former firm, ClearPath Wealth Management, defrauded funds they advised and investors in those funds.

According to the SEC, beginning in 2010, Churchville and ClearPath began misappropriating investors’ cash in the funds, misallocating investor assets, and using cash that was meant for particular investors to instead pay for new investments or fund cash distributions to other investors. They also used fund assets to repay borrowed funds with money that should have been distributed to investors.

The DOJ’s charges against Churchville detailed how he’d previously invested about $18 million in a Maryland-based entity. By June 2010, it was no longer producing returns, and it became clear that it had fraudulently misrepresented its standing to ClearPath. But Churchville didn’t notify clients about the losses, employing the a Ponzi-like strategy to pay back existing investors with new investor funds. During this time, he told investors that ClearPath’s investments had continued to produce high rates of return, according to the DOJ.

Additionally, in 2011 Churchville obtained $2.5 million dollars by using investors’ funds as collateral without their knowledge to buy a home in Barrington, and failed to report the money as income on his tax returns, according to the DOJ. 

But beginning in 2013, investors began pushing back, according to the SEC complaint. In early 2013, one investor wanted to redeem his investments and move to a new advisor, but for months, Churchville gave the investor a number of excuses, while not telling him the money had already been used. In October, an investor inquired about the status of their assets; while Churchville said the money was “at the companies,” in reality the investments had been redeemed months before and had already been used by ClearPath. But investors increasingly wanted Churchville to return what was left of their assets, according to the commission.

“Because defendants themselves had been misappropriating investor money, they were unable to return the requested money to their investors when asked,” the complaint read. “Defendants deflected those requests through a series of misrepresentations about why they could not then give investors back their money.”

Churchville originally pleaded guilty to the DOJ charges, and in March 2017, he was sentenced to seven years in prison for the scheme that affected more than 110 investors, including his former father-in-law, according to NBC 10 News. The sentencing hearing  included victims’ testimonies, including one disabled veteran who said he transferred about $800,000 from Morgan Stanley to ClearPath and was left with nothing.

“It was a nightmare that would not go away,” the veteran told the court, according to NBC 10. “He created my financial death—the man destroyed me.”

The final judgment orders Churchville pay more than $29 million in disgorgement, about $4.6 million in prejudgment interest and a $225,000 civil penalty.