Broker fined $1.75 million for 'Ponzi' operation Md. investors bilked out of $1.6 million

Securities industry

May 13, 1998|By William Patalon III | William Patalon III,SUN STAFF

An Ellicott City man and his securities firm have been fined $1.75 million and ordered to stop doing business in Maryland after bilking Maryland investors out of $1.6 million in a securities operation that was "nothing more than a Ponzi scheme," Attorney General J. Joseph Curran Jr. said last night.

The fines were levied against Michael P. Keating Sr. and the Keating Advisory Group of Columbia.

Keating had the opportunity to contest the allegations that led to the order, but did not do so, Curran said.

A telephone call to the Keating Advisory Group yesterday was answered by a recorded message that said workers would be "out of the office."

Curran declined to say whether any additional charges were pending. He also would not comment on a second case he said is pending against Keating, which also involves the federal Securities and Exchange Commission.

However, Curran did say that the state securities commissioner had barred Keating, a stockbroker and investment adviser, from working in the securities and advisory business in Maryland.

"He is denied right to sell securities in Maryland under our order," Curran said late yesterday.

"We are telling people: 'Do not deal with Mr. Keating.' "

Keating was fined $750,000 and his firm $1 million.

The fines will be reduced dollar for dollar by whatever money Keating returns to investors.

But it is not immediately clear whether any money is left to be returned, Curran said.

Investigators learned of Keating's activities through telephone calls to the office of the attorney general, and the investigators visited the broker's office -- accompanied by the SEC -- in January 1997.

Keating, in concert with an Ohio stockbroker, sold Maryland investors promissory notes -- said to be backed by hard assets -- that offered a one-month return of 15 percent.

The Ohio broker, who is still being investigated, was not identified.

The investments made with Keating ranged from $5,000 to $135,000 each, Curran said, and many of the investors were retirees or people who took money out of Individual Retirement Accounts to reposition it.

Those people were hit with a double whammy: Not only did they lose their money, they had to pay a tax penalty as well for failing to replace the IRA funds.

Curran said the securities operation was like a Ponzi scheme in that money from later investors was used to repay earlier investors -- and to pay Keating.

As a result of the investigation, Curran's office issued an order last fall for a hearing on securities fraud.

The attorney general said Keating is contesting that case and a hearing will be scheduled.

In October, Curran said, his office issued a cease and desist order that resulted in yesterday's fines.

"We really want to warn people to be careful with these kinds of things," Curran said.

Pub Date: 5/13/98

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