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Investment advisor gets 5 years in scam

South Boston News
Sullivan / March 28, 2018

A $1.4 million Ponzi scheme ended with its perpetrator receiving an active prison sentence of five years, out of a total 160-year term imposed by Mecklenburg County Circuit Court Judge Leslie Osborn on Thursday.

Michael Sullivan, 37, of South Hill, doing business as Kenhill Financial, was also ordered to pay nearly $817,000 as restitution to the fraud victims. Judge Osborn suspended the balance of Sullivan’s 160-year prison sentence.

In October, Sullivan pleaded guilty to 15 counts of embezzlement and one count of money laundering.

At a sentencing hearing Thursday in Boydton, Mecklenburg County Commonwealth’s Attorney Allen Nash painted a picture of Sullivan as a callous man who used his friends for his own financial gain. “He viewed them as dollar signs,” said Nash. He told of one investor who Sullivan convinced to mortgage a house that the investor owned outright, and another man who gave Sullivan everything left to him by his father, nearly $600,000.

Several of Sullivan’s victims entrusted him with sums upward of $100,000.

According to filed court documents and arguments advanced by Nash at Thursday’s sentencing hearing, Sullivan formed Kenhill Financial in 2009. For the first several years he reported legitimate gains and losses. Beginning in 2013, Nash said, Sullivan’s “standard of living outpaced his legitimate income.” From 2013 until he was shut down in 2016, Sullivan executed a Ponzi scheme using approximately $1.4 million in funds he solicited from at least 15 victim investors in Mecklenburg County and elsewhere.

In the fall of 2016, the Virginia State Police Appomattox Field Office of the Bureau of Criminal Investigation was asked by the Commonwealth’s Attorney to conduct a criminal investigation into allegations of embezzlement committed by Sullivan. Investigators determined that more than $1.4 million was diverted from clients’ investment accounts between 2013 and 2016. On April 17, 2017, a Mecklenburg County grand jury indicted Sullivan on one count of money laundering and 15 counts of felony embezzlement.

He was arrested three days later but released after posting bond.

Nash described Sullivan as a day trader who used his position of trust to solicit investors and steer them into high risk investments — he traded in futures — promising returns of 22 percent per quarter. He also falsely claimed to be a licensed securities trader. Contrary to the promises made to his investors, Nash said most of the money he received was never invested, but used to cover “questionable expenditures, and his own salary and commissions.”

He concealed his embezzlement activities by sending fake statements to his clients. Moreover, for a period of over a year, Nash said, Sullivan engaged in “almost no day trading.”

Sullivan used a portion of the victims’ money to make purported “interest” payments to some investors. In all, Nash said Sullivan misappropriated $1,430,580.35 from his victims.

Nash said he struggled with what sentence to request for Sullivan, who because of his skills and education should be able to earn enough money to make his victims whole. Because he could not “turn a blind eye” to the “massive scope of the fraud,” Nash asked Osborn to sentence Sullivan to 160 years and suspend all but 10 years — five for embezzlement and five for money laundering. He also asked that Sullivan be placed on indefinite supervised probation following his release from prison, be on good behavior for 160 years, have no further contact with his victims, and pay $816,815.92 in restitution.

Before Thursday’s sentencing, Sullivan, through a receiver appointed to liquidate his accounts and other assets, refunded just over $632,000 in investor funds back to the victims. He added another nearly $18,000 from his personal assets.

Speaking for his client, attorney Patrick Hanes called Sullivan a “man of sterling character” for 34 of his 37 years. He also acknowledged that for a period of three years Sullivan “abused trust, lied and stole. That’s why we’re here.

“The question for you [Judge Osborn] to decide,” Hanes said, “is [Sullivan] the man of 34 years or the man of 3 years” — a reference to the three-year period during which Sullivan bilked friends and investors of over $1.4 million.

“The nature and character of a man is what you do after facing up to [your misdeeds],” said Hanes, adding that his client made a full admission of his misdeeds, extensively cooperated with those investigating him and even offered to turn himself in to law enforcement.

Nash said, in response, “The true character of a person is what they do when no one is watching,” adding rhetorically, “Would this still be going on if there were no SEC investigation?”

Hanes denied his client engaged in a Ponzi scheme, instead calling his actions, “a trading strategy that failed.” He spoke of the victims who stood by Sullivan after learning their investments were stolen, including one who since the embezzlement came to light gave his client a job.

He asked Osborn to “judge the person outside of his crime” — a family man and church goer who is very different from the man who committed the crime — and give due consideration to the number of people who wrote character references for the man. Hanes asked Osborn to balance Sullivan’s desire to make his victims whole against the need to punish the man for his crimes. “He has talent and community and family support,” said Hanes before asking the judge to order home incarceration or suggest the prison allow his client out on work release.

Standing, with his head down and tears rolling down his face, Sullivan apologized to his victims — several of whom were in the courtroom — telling them there was no excuse or justification for his actions. He said his drive to share his passion for investing turned into an obsession and he was ashamed, embarrassed and too proud to admit when his business began to fail.

Sullivan equated his conduct to an addiction.

He described a path forward, which included showing his two sons a “husband and father who admits his mistakes and recovers with God’s help.” He also “accepted responsibility” and pledged “to do all I can to make restitution. I believe my Lord and Savior wants me to use this situation to guide me and make me a stronger and better person.”

Before handing down the sentence, Osborn had a few questions for Sullivan, among them where the money went that he took from his clients and if Sullivan explained to his clients that their money was being invested in futures — which are very risky. “The money went to cover trading losses, to my education business [an investment school he ran] and to pay expenses and my salary and normal living expenses.” He assured Osborn that disclosures provided his clients included references to trading in futures — buying and selling financial contracts that obligate a buyer to purchase an asset or the seller to sell an asset at a predetermined future date and price.

In imposing Sullivan’s sentence, Osborn noted the damage to the victims caused by the defendant involving the loss of their nest eggs. He said he was especially touched by the statement made by one of Sullivan’s younger victims who managed to save $12,000. He lost it all. Because of Sullivan, the victim wrote, “I will never trust again.”

The judge chastised Sullivan for promising investors a return of 22 percent per quarter. “No one does that. It’s unheard of,” and expressed skepticism that the 25 people who wrote character references understood the full depth and breadth of his crime.

At the same time, he acknowledged that Sullivan’s lack of criminal record, level of education, and long history of employment had to be weighed against the conduct and the amount of loss suffered by the victims.

In the end, he sentenced Sullivan to 160 years, but suspended all but five years on one embezzlement charge, placed him on indefinite supervised probation upon his release from prison and required him to be of good behavior for 100 years. Sullivan will be required to submit to a DNA test and has 20 years to make restitution in the amount of $816,815.92. He ordered Sullivan to jail immediately. While the judge said he had no authority to grant Hanes’ request that his client be allowed work release, he said he would not object to Sullivan serving the last two years of his prison term on work release, should he qualify.

As for his victims, Sullivan was ordered to have no contact with them, unless the victim sent a letter to the court, in advance, agreeing to have contact.

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