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Hon. William Martini, U.S.D.J.

(via email only)


United States District Court
50 Walnut St
Newark, NJ 07101
Re: Case 14cv3574 Connolly v. United States
March 16, 2015
Dear Judge Martini,
I am a victim of David Connollys Ponzi scheme that was run in connection with his
company Connolly Properties (12cr343). (redacted). I am aware of the Petitioners 2255
brief in support of his motion to set aside, vacate or correct his sentence. I would like to
make a few observations regarding statements of fact made in his brief, his reply to the
governments answer, and the letter supporting amendment of his habeas petition.
1. Was Connolly aware that he was dealing in securities?
In Connollys reply to the governments answer, he denies dealing in securities (p. 6),
states that he considered his business exempt from securities law (p. 7), and that he was
unaware of securities laws at all (p.7 fn 5)
In a deposition of Connolly in November 2009 (9cv5267 Doc 38-1), there is testimony
that may be relevant. The following exchange reflects that Connolly registered his
investments with a securities registration firm prior to about 2005, but subsequently
ceased doing so due to an oversight:

2. Did Connolly solicit investors in 2009?


In the justification to amend Connollys petition it is stated that he did not solicit
investors in 2009. In response to this, I bring to the Courts attention these facts:
1. Multiple investors sent checks to Connolly Properties to invest in Hampshire
Court in January and February 2009, and the Hampshire Court prospectus is

dated Jan 2009. Said investors received letters from Connolly verifying these
investments. (9cv5267 Doc 1-2)
2. I personally was solicited via email to purchase existing shares in Connolly
properties monthly from April through July 2009 for nine existing Connolly
properties, as well as Marshall Woods and Newport Village.(Exh C) These
shares total at least $2.26m. I observe the following:
a. The existing properties had all made their final mortgage payment prior to
default at least a month before the solicitation. Of five properties listed in
the July 21 solicitation, four are believed to have last paid their mortgages in
March, and Connolly had been notified six weeks prior to July 21 that they
were in default.
b. The June 19 solicitation indicates dividends will be paid immediately,
even though the existing properties listed were in default, and the majority of
the capital of the new properties is argued to have been used for other
purposes by the end of 2008. (SEC complaint 50)
3. Attorney promises are covered by Application to Plead Guilty form
Connolly states in his reply to the governments answer that he was promised by his
attorney that he would not spend even a day in jail if he pled guilty. This is an extremely
bold assertion, when one considers the federal guidelines for the charges Connolly pled
guilty to, and that the sentence imposed by the Court was at the bottom of the
recommended range and the Court gave Connolly a two level reduction for accepting
responsibility. As a novice, I had gone through the exercise of estimating his sentence as
shown in my impact statement and arrived at close to the Courts decision.
It is further noted that 24 of the Application for Permission to Plead Guilty addresses
promises made by any person that a sentence will be reduced or any leniency will be
afforded, including the Defendants attorney: such a person shall be regarded as not
telling the truth.
4. Suggestion that Connolly was a Victim, not a Player
In the letter in support of amendment of Connollys habeas petition, it is alleged without
supporting evidence that Connolly was a victim of big banks, and that he lost more
than his investors. (p. 2) In his reply the governments answer, it is implied that the
banks failure to lend Connolly more money in late 2008-2009 helped facilitate the
failure of his properties. (pp.1-2)
Connolly used banks systematically to raise capital through refinancing the majority of
his investors properties from 2001 through September 2008, without those investors
knowledge. Connolly turned the standard mortgages advertised in prospectuses into
highly leveraged ones, with interest-only terms and accelerated schedules. During this
period Connolly refinanced twenty of thirty six properties, extracting approximately $36
million in equity, and ten properties were refinanced twice. (Exh B) The evidence

suggests that Connolly knowingly commingled the proceeds of this refinancing to pay for
shortfalls in the performance of various entities, pay distributions, and to possibly fund a
development enterprise unknown to most of his investors.
The Hillside Valley construction loan was frozen in July 2008, and a replacement bank
was not in place until January 2009. Appraisals in June to November 2010 showed the
as-is value of Hillside to be $9.6m to $13m, at a time when the loan balance was $15m
Hillside was under water. By November 2011, when Hillside was 60 to 70% complete,
Connolly had committed $26m to a property worth an estimated maximum $13m. (Exh)
Hillside was lost, but this was not the fault of a bank failing to act responsibly.
The evidence suggests that banks were in no position to grant Connolly forbearance at the
end of 2008, because he was already heavily leveraged by his own hand. Another case in
which Connolly was not a victim was my lawsuit against him, in which it was found he
defalcated the Trust assets of my two properties (Exh A)
If one considers the four significant development projects that Connolly pursued with
partner Richard Colasuonno from 2004 through 2008, including Hillside Valley, and his
activities during this period as President of Connolly Properties, he in fact appears to
have envisioned himself a player in the real estate business.
The suggestion that Connolly lost more wealth than other investors in the letter
supporting amendment of his habeas petition is presented without evidence. (p. 2) I
endeavored to estimate the actual losses of investors and banks, based on estimated
investor investment, actual mortgages, and the ultimate liquidation prices of Connolly
properties. I estimate current bank losses at $26m, and investor losses at $31m (after
distributions) (Exh H) What was Connollys actual loss? Of the roughly $2.25m in
distributions that Connolly collected from investor properties in the relevant period 2006
to 2009, what portion was actually derived from profit, and what portion was from
investor capital intended for new investments? I estimate that Connollys actual loss of
his house, his Plainfield apartment building, his Aston Martin, his Franklin condo
development, and his Hillside Valley investment is between $3m to $4m. (amendment:
how much of the capital invested in these was actually his?)
5. Did Connolly lose Everything?
During his sentencing hearing, Connolly stated he had lost everything. But two
Connolly entities, my property Siesta Park, and Allentown Apartments, were transferred
by Connolly in 2011 to the management of a son of his partner Richard Colasuonno.
Comments by apartment residents online indicate Richard Colasuonno is managing these
apartments with his sons. Investors in each property were told by Connolly that their
property had been recovered, using capital supplied by an unnamed outside investor.
(Exh G) Connolly stated investors would be kept updated, but to date have received no
further contact from Connolly, Connollys wife (vice president of Connolly Properties),
Richard Colasuonno or his sons. The outside investor appears to be Selim Zherka,
since he signed the mortgages for each of these properties. Both properties have

subsequently been refinanced for higher amounts, similar to the fashion in which
Connolly refinanced his properties. Zherka is now in Federal Prison on charges of
mortgage fraud against Signature Bank, which is the holder of these mortgages as well as
others. (see Southern District of NY 14cr545).
Another property, Apex Apartments, which was one of ten entities that made up
Connolly property Plainfield Apartments, was also transferred to Colasuonnos son and
Selim Zherka. In that case, no notice was given to investors that they have a remaining
interest.
The lack of information from Connolly or his associates regarding these transfers, in light
of the proposal in Connollys reply to the governments answer that information on
criminals might be proffered to the government (p.5 fn 4), call into question in my
mind if Connolly has actually lost everything, or if he has a remaining interest in some or
all of these properties. If Connolly was an innocent victim, why hasnt he, his wife or an
associate communicated the status of the only two properties he recovered for investors
out of his entire portfolio?
Statement
I submit as a final comment as a victim that if the Petitioner satisfies the Court that his
rights have been violated, I would dearly love to see his guilty plea set aside, and the
government to conduct a trial pursuant to 28 U.S.C. 2255.b, so that investors would
obtain a clearer and more complete picture of his fraud. I would make the trip to Newark
each and every day to witness the trial.

cc:
Elizabeth Foster, Atty for Petitioner via email
Leslie Faye Schwartz, AUSA via email