SEC charges broker with luring investors into fake tax-exempt bonds

BY SourceMedia | MUNICIPAL | 11/29/21 10:10 AM EST By Connor Hussey

The Securities and Exchange Commission has charged former Illinois-based broker-dealer Ronald Molo with defrauding three investors out of $800,000 by luring them into investing in nonexistent tax-exempt bonds.

The bonds were not genuine, the SEC found, and Molo is accused of using the $800,000 for personal expenses.

?Molo convinced the three investors to transfer money out of their advisory and brokerage accounts to another bank account, purportedly to invest in tax-free bonds,? the SEC release said. ?In reality, the bonds did not exist and Molo did not tell the investors that the account to which he had directed them to transfer their money was his personal bank account.?

Between January 2019 and November 2020, while registered with Edward Jones, Molo allegedly stole $250,000 and $300,000 from two of his investment advisory clients while working out of his firm?s office in Joliet, Illinois. He then stole another $250,000 from a brokerage firm client, the SEC said.

The SEC found that Molo used this money to pay personal expenses including mortgage payments, automobile purchases and renovations to his home. He then tried to cover it up by sending the three investors $22,000 in purported interest payments from the nonexistent bonds, using altered cashier's checks drawn from funds in his personal bank account.

?Molo did not provide the investors with written materials about the purported bond investments ? all of their communications about the supposed investments were oral,? the complaint said. When his former employer discovered the fraud in June 2021, they terminated him.

The SEC's complaint was filed in the U.S. District Court for the Northern District of Illinois and seeks injunctive relief, disgorgement, prejudgement interest and civil penalties.

The U.S. Attorney?s Office for the Northern District of Illinois filed criminal charges against Molo on Nov. 23 in a parallel action.

The Financial Industry Regulatory Authority suspended Molo's license in October, citing his failure to respond to questions from FINRA investigators.

The SEC investigation is ongoing and is being conducted by James O?Keefe, supervised by Steven Klawans of the Chicago regional office and litigation is being led by Eric Phillips.

In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so avoiding losses caused by price volatility by holding them until maturity is not possible.

Lower-quality debt securities generally offer higher yields, but also involve greater risk of default or price changes due to potential changes in the credit quality of the issuer. Any fixed income security sold or redeemed prior to maturity may be subject to loss.

Before investing, consider the funds' investment objectives, risks, charges, and expenses. Contact Fidelity for a prospectus or, if available, a summary prospectus containing this information. Read it carefully.

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