ARGUMENT

I. MR. CONNOLLYS INVESTMENT BUSINESS DID NOT BEGIN AS A FRAUD.

Unlike most Ponzi schemes, Mr. Connolly did not start his

investment business as a fraud. Where are the statistics that

this is true? On the contrary, he started his company with the best of intentions--to benefit his investors, mostly close

friends and family. According to Connollys verbal statement at

sentencing, this was his goal until the very end, at least

three years after he began stealing from investors. After

finding early success, Mr. Connolly offered legitimately

profitable opportunities to other small-scale investors. From

1996 until approximately 2008, he consistently produced sizable

returns for his happy investors. Connolly began taking funds

from investors at least in early 2006. Happy investors who

are unaware they are going bankrupt at a rapid rate dont

remain happy for long.

Only with the onset of the national economic downturn and

attendant collapse of the real estate market did Mr. Connolly

begin to engage in knowingly fraudulent conduct. Actually,

Connolly began refinancing investor-owned properties as early

as 2001. In May and June 2004 alone, two properties were

refinanced and $1.4m removed. The Miners Cove land was

purchased a few weeks later for $750,000. As stated below by

Connollys lawyer, Connolly began commingling the funds of

different companies as early as 2004 or 2005. In February 2006

Allentown Apartments was refinanced for $3m, and the Hillside

Valley land was purchased the next month for $1.1m.

Construction commenced on these two highly speculative

properties in 2006, just as the real estate market collapsed.

Most investors were unaware of this, as the construction side

of Connolly Properties was not revealed to the average

investor. Even then, Mr. Connolly honestly but mistakenly

believed that he could overcome the financial difficulties of

his investment entities. He believed that the best way to

survive the downturn was to ride it out until his skills as

investor allowed him to turn things around, not only for

himself, but also for his investors. Riding it out for Mr.

Connolly took the form of using his skills to very aggressively

refinance investor properties, to the tune of $30m+ after the

beginning of the 2006 downturn in real estate, as well as

buying three large apartment buildings in 2007 using investor

equity, all without telling them. After all, he had done it before. During the early 2000s,

Mr. Connolly purchased a financially distressed apartment

building, meticulously improved it, attracted higher income

tenants using targeted advertising, and eventually provided

returns to his investors in the property. Within two years,

however, a known drug dealer moved into the building and

began to conduct illicit transactions. Frightened tenants

moved out in droves, which depressed the rent rate, causing

the property to operate at a loss. Mr. Connolly continued

to pay regular disbursements to his investors, whom he

never informed about the losses. Instead, he contacted the

Police Officers Benevolent Association and hired off-duty

officers to patrol the building. Conditions improved, and

Mr. Connolly eventually evicted the drug dealer. The

property recovered because of Mr. Connollys acumen as an

investor and property manager. Similar past experiences led

Mr. Connolly to vastly overrate his ability to conceal

financial problems without actually harming his investors.

Whatever.

Understanding Mr. Connollys misguided perspective

sheds light on certain key elements of his offense conduct.

For example, the offering prospectuses Mr. Connolly

prepared for each investment entity were not originally

intended to misrepresent cash returns or the structure of

the entities. The prospectuses were entirely forward-

looking and Mr. Connolly honestly believed he could meet

the expectations. When returns did not pan out, Mr.

Connolly failed to sufficiently apprise his investors.

Worse, he continued to fraudulently disseminate the old

prospectuses. Uh, far worse was failing to keep company

funds segregated, not reconciling their cash flows, and

paying returns to investors in properties not producing a

profit. Also, refinancing properties routinely and using

$35.7m investors equity for paying the bills and

speculating on ill-conceived investments no one in their

right mind would touch with a 10 foot pole. But unlike

other offenders punished pursuant to the advisory

Guidelines for fraud, Mr. Connolly did not initially

prepare these documents with a culpable mindset. Similarly,

at the time Mr. Connolly drafted the initial prospectuses,

his investment properties truly operated as financially

independent entities with separate accounts. Prove it.

Sometime between 2004 and 2005, however, Mr. Connolly met

with treasury management consultants with Fleet Bank (now

owned by Bank of America), who recommended a so-called

umbrella account, under which each investment entity had

its own subaccount.1 Each entity had its own bank account

number and the books were kept separately, with individual

accountings for expenses and income, but a single

disbursement account served all the subaccounts.

Each entity had its own block of check numbers in one account, having a single balance.

The books of each company were kept individually, making it

impossible to reconcile each companys account. If one

subaccount overdrew, the other accounts covered the

deficit, thereby improperly subsidizing losses.

There is no way for a subaccount to

overdraw if it has no balance. When Mr. Connollys investment companies went belly up, the

improper commingling of revenues spiraled out of control.

The commingling of funds started in 2004-2005,

and companies went belly up in 2009.

But at the time Mr. Connolly entered into this banking

arrangement, his concerns were merely practical, not criminal.

The fees were lower (and offset by additional earned

interest), and the

(Footnote in original document:)

1 During the revenant timeframe, Mr. Connolly employed numerous attorneys and financial advisors, all of whom failed to ade- quately advise him how to remain in compliance with the law. Why would it be necessary for an attorney or financial advisor to explain 8th-grade level reading in the trust agreement that company funds are not to be commingled with those of unrelated entities?

umbrella account streamlined bank reconciliations. How is it

practical and streamlining to institute a system which

makes reconciling the books totally impossible, whereas

previously this was not an issue? Moreover, his investors appreciated the direct deposits this more technically

sophisticated banking system facilitated. Sophisticated?

More like moronic. Only if one is setting out to

create a Ponzi scheme is this sophisticated. Indeed,

many of Mr. Connollys investors, including close

family members, began to depend on these regular

distributions. What if close family members knew these

regular distributions were not connected with profits in any

manner an accountant could verify? How much would they

appreciate that?

By 2009, Mr. Connolly finally understood that he should

discontinue the distributions, but, perversely, he believed

that revealing the problems and halting the payouts would harm

his investors more than concealing the shortfalls. Mr.

Connolly knew that investors would have a cow and demand

their funds supposedly in escrow for new purchases (but long

gone) at any given time if he discontinued distributions. If

only he could buy a little more time, he would not only

reimburse his investors, but also enrich them, as he had done

in the past. Yes, and like all Ponzi schemers he attempted to

buy time in 2009 by paying his Marshall Woods investors

lulling payments to keep them from demanding their escrow

back, simultaneous with all the existing properties going to

default, a fact which only he was aware of.

II. MR. CONNOLLYS PRIMARY MOTIVATION WAS NEVER GREED. Although Mr. Connolly committed fraudulent acts and

ultimately bears responsibility for his investors losses, it

must be conveyed that his conduct was not motivated primarily

by greed. How does this square with taking distributions from

properties after they went to foreclosure, or granting himself

a $380,000 salary after distributions ceased? Buying

properties in his and Colasuonnos names using investor

capital? Rather, Mr. Connolly strived to gratify his

investors no matter the cost. Such as total loss of their

equity. Sure! He felt compelled not to let them down by disclosing looming financial problems and discontinuing

expected disbursements. Alternatively, Connolly manufactured

multiple ways of hiding the impending disaster in 2009 long

enough to protect his own interests and obligations, at the

expense of everyone else. This misguided rationale; combined

with Mr. Connollys honest yet miscalculated confidence in his

own abilities as an investment manager, is what fueled his

fraudulent conduct more than mere financial gain.

Alternatively, as Connolly was the only one aware that

everything was crashing down, Connolly looked out for his own

interests to the exclusion of others. Indeed, many of the

acts and omissions that led to Mr. Connollys conviction were

motivated by a desire to do right by his investors.

Alternatively, he was trying to cover his deception, pitiful

performance/management and thefts until the bitter end.

For example in July of 2009, when the Marshall Woods and

Hampshire Courts transactions failed to close, Mr. Connolly

returned to his investors an interest nearly equivalent to the

equity that was raised to purchase the intended properties.

Tell me more, Mr.Science. Mr. Connolly offered the Marshall

Woods project to his investors in May of 2008. It was

important to provide an investment opportunity located in

Pennsylvania because many investors sought to utilize self-

directed IRA investments to buy shares and the investors

primary trust company would permit a venture in Pennsylvania,

but not New Jersey. On paper, Marshall Woods appeared to fit

these investors criteria. Mr. Connolly exercised care to

identify potential defects in all target properties in order

to provide the promised returns to his investors. While

conducting due diligence on the Marshal Woods property, Mr.

Connolly discovered a higher than represented vacancy rate and

concluded that income and expenses did not support the price

he had agreed to pay. This never impeded Mr. Connolly before.

For 2008, none of his properties was

profitable enough to pay distributions, yet

he paid them using investors companies

capital and escrow. He paid a record per

unit price for Grand Court Villas in July 2008 even though it

had a 20% vacancy. Mr. Connolly unsuccessfully attempted to

renegotiate a suitable price, but ultimately abandoned the

Marshall Woods project as unprofitable. The escrow for

Marshall Woods has never been located, so what would he have

used to buy it if he hadnt made this prudent decision?

But Mr. Connolly then located a substitute property in

Pennsylvania called Newport Village. While investigating this

property, Mr. Connolly learned of a potential environmental

issue, which he took steps to resolve, but Newport Village

sold to another buyer during the interim. Mr. Connolly had

simultaneously made a separate deal to purchase a smaller

apartment community in Plainfield, New Jersey named

Hampshire Court, but this transaction also fell through.

What evidence is there that the Hampshire Court escrow

existed at this time? As soon as Mr.

Connolly discovered that he no longer had

sufficient funds to reimburse the full

amount of the investors contributions, he

provided them with a property comparable to what they had

expected when they agreed to invest in Marshall Woods

and/or Hampshire Court. Tell me more, Mr. Science. Mr.

Connolly achieved this result by trading his personal

interest in two tracts of land in Pennsylvania for a larger

interest in another apartment project named Hillside

Valley. Looking at the calendar, this is June 2013, so

lets cut the crap. Connolly owned a

50% interest in Hillside from 2006

through July 2009, which he purchased

using his investors equity. He owned

50% of a second property, Central Park Apartments that he

and Colasuonno bought using investors equity on Sept 29,

2008 for $1m (on the very eve of bouncing investor checks

in November 2008, and while the Hillside mortgage was

suspended from July 2008 through January 2009). Connolly

kept an 11% interest in Hillside, so he gave up 39% for

equity worth 0.78($1.1m/2 (His share of Hillsides land) +

$500,000), or $820,000. That would make the 78% of

Hillside that investors paid $8 to $9m for worth about

$1.6m, at least at a glance. For one thing, there is no

evidence that Connolly or Colasuonno paid $0.01 of their

own money to purchase either property, but more

importantly, Hillside was under water in July 2009. In

order to cover the amount of the Marshal Woods and

Hampshire Court investor contributions, Mr. Connolly

transferred to his investors a seventy percent interest in

the Hillside Valley project. Actually, it was 78%, but it

doesnt cover their contributions either way. Although

Hillside Valley was under construction in July of 2009, it

was eighty-five percent complete. No, it was 58% complete.

Hillside Valley is a luxury apartment community that could

have met or exceeded the investors expected returns.

Hillside Valley is an ill-conceived housing project next to

a 24/7 rail yard that an Allentown tax assessor suggested

would be a good place for the deaf or Section 8 tenants.

An October 2008 appraisal indicated that the completed

value of Hillside Valley was $25.1 million. The appraiser

must have been high on drugs or paid off by the bank. In

July of 2009, the outstanding balance on the construction

mortgage was approximately $10.8 million and the amount

needed to complete the project was $3,379,200. At 58%

complete on an $18.5m construction loan, the cost to

complete was more like $7.7m. Mr. Connelly even

contributed $306,577 of his own cash toward construction

costs, which reduced the total needed for completion to

$3,072,577. Investors Savings Bank suspended the Hillside

mortgage in July 2009, because $238,000 for water

connection disappeared from the Hillside coffers.

Colasuonno has stated Connolly paid that and other fees to

get Investors to resume loan draws. Thus Connollys

generosity appears to be born out of necessity and possibly

returning misappropriated funds. The appraised value of Hillside Valley ($25,100,000), less the balance due on the

mortgage ($10,800,000), less the cost to complete

construction ($3,072,577) amounts to $11,227,423 in equity.

Mr. Connolly vested seventy percent of this equity with his

investors. Ultimately, Mr. Connolly recompensed his

investors with nearly $8 million of his own equity. Lets

try this without using a (grossly inaccurate) predicted

future value to calculate current equity. First, as shown

above, there was possibly $1.6m in equity (from Connolly

and Colasuonnos perspectives) in 78% of Hillside, based on

investment alone. Based on this, best case, investors were

ripped off by Connolly in July 2009 to the tune of $8m to

$9m subtract 1.6m, or $6.4m to $7.4m. However, Hillside

was worthless in July 2009 there was no equity. Three

appraisals of Hillside have been done after Oct 2008, and

its value with a final $15.8m loan balance has been a

maximum of $13m (by Connollys appraiser). At its

bankruptcy hearing in 2011, the judge declared Hillside

under water, without accounting for investors missing $9m

in capital. Hillside sold in 2011 for $7.5m. Connolly and

Colasuonno had a judgment entered against them in March

2013 for the difference between $15.8m and $7.5m, or $8.3m.

Investors didnt get jack for equity.

Of course, none of this justifies Mr. Connollys

conduct. But it does paint a different picture than a

mechanical application of the Guidelines would suggest. Mr.

Connolly regularly reimbursed investors out of his own

assets and cash, even after he had stopped soliciting new

capital contributions. If Connolly paid anything to

investors, it was using money from

distributions paid out of investors own

escrow or working capital of their

companies. Connolly was soliciting from

investors for properties in default up until July 2009, the

same month the lulling payments to Marshall Woods investors

ceased. From 2009 until 2011, Mr. Connolly devoted himself

fulltime to saving the investment properties from

foreclosure. Then he missed the mark completely to save

properties from foreclosure, the critical step would have

been stopping distributions in 2008, which would have

revealed his deception. Connolly did recover part or all of

three properties: Siesta Park and Apex Apartments in

Plainfield, and Allentown Apartments in Allentown.

However, investors in Siesta and Allentown have heard

nothing at all in the two years since they were recovered

allegedly on their behalf. Connolly appears to have Apex

strictly for his own profit, as investors have heard

nothing at all about this transaction. Rather than cut and

run Mr. Connolly essentially

went down along with his

investors. Cut and run is

precisely what Connolly did.

He gave no notice of default or

foreclosure of investors

properties, instead focusing his efforts on granting

himself a $380,000 salary and cashing stale distribution

checks once rent receipts were available for the taking due

to cessation of mortgage payments. Even before his

indictment, Mr. Connollys personal finances were in ruin.

Yet, Connolly paid down the Miners

Cove mortgage (which he, his wife

and Colasuonno were guarantors on)

by $1m in Jan 2010, he paid his home

mortgage of $12,200+ a month through

June 2012, as well as mortgage of

the rental property he and his wife

own in Plainfield, while all mortgages under Connollys

control but financed by investors stopped being paid by

July 2009, three years earlier. Connolly first, everyone

else later. Unlike so many other white-collar offenders,

Mr. Connolly experienced a zero sum net gain. Connolly

ended up losing everything due to a house of cards of his

own construction. He didnt have a zero sum net gain at

the inception of the collapse of his scheme. Investors and

banks, on the other hand, lost over $30m each, and had far

worse than a zero sum net

gain. Simply put, Mr.

Connolly is not the type of

defendant the Commission

envisioned when formulating

the Guidelines advisory range for fraud. Mr. Connolly is

precisely the type of defendant for which the guidelines

were formulated.