TRENTON
– Attorney General Anne Milgram and
Criminal Justice Director Deborah L. Gramiccioni
announced that a Monmouth County financial
advisor was charged today with defrauding
investment clients out of millions of dollars
through a Ponzi scheme.
According
to Director Gramiccioni, Maxwell B. Smith
III, 69, of Fair Haven, was charged by summons
complaint with first-degree money laundering,
second-degree securities fraud and second-degree
theft by deception. The charges, filed in
Superior Court in Morris County, resulted
from an investigation by the Division of Criminal
Justice Major Crimes Bureau.
According
to a certification filed in court, Smith allegedly
defrauded at least 13 mostly elderly investors
out of approximately $10 million between 1992
and 2009 by selling them fraudulent investments.
Smith allegedly laundered the stolen investor
funds through bank accounts he controlled
and used the funds for his personal expenses.
“This
defendant ruthlessly preyed on elderly investors,
targeting longtime clients who trusted him
to look out for their interests,”
said Attorney General Milgram. “Instead,
Smith deceived them and stole their money,
in some instances depriving retired investors
of their life savings.”
Since
1974, Smith has been a registered agent and
investment representative with numerous broker
dealer firms licensed to sell investment products
in New Jersey. Smith worked for an investment
firm based in Tinton Falls from January 2005
to April 2009, when the firm fired him and
reported his alleged fraudulent conduct to
securities regulators.
Detective
Sgt. Louis A. Matirko and Deputy Attorney
General Andrew C. Fried conducted and coordinated
the investigation for the Division of Criminal
Justice Major Crimes Bureau. The New Jersey
Bureau of Securities is conducting a separate
regulatory investigation of Smith.
Since
1992, Smith marketed investments he called
“Health Care Financial Partnership Direct
Municipal Loans.” He represented
that Health Care Financial was an entity that
made investments involving the financing and
refinancing of health care facilities such
as nursing homes and continuing care retirement
centers for the elderly.
Smith
represented that the investments were safe
and free from federal income tax, and he promised
semi-annual interest payments of 7.5 percent
to 9 percent. In fact, the investments did
not exist. They were part of a Ponzi scheme
by which Smith misappropriated approximately
$10 million in investor funds.
The
investigation revealed that the victims were
instructed by Smith to make their investment
checks payable to “ Merrill Lynch”
and send them to Health Care Financial at
an address he provided in New York, which
was actually a Mail Boxes Etc. mail drop leased
by Smith.
Smith
allegedly deposited the investor funds into
a Merrill Lynch bank account in his name.
Instead of investing the funds for the investors,
Smith allegedly laundered the funds through
a series of financial transactions to other
bank accounts he controlled, using a small
portion of the victims’ own funds to
pay them interest on the bogus investments.
The interest payments provided a false impression
to the victims that their investment with
Smith was bonafide.
The
investigation also revealed that Smith created
a false “Summary of Essential Information”
prospectus for the Health Care Financial investment
which he provided to the victims, as well
as false investment confirmation letters sent
to them after they invested their funds.
“Our
investigation revealed a consistent pattern
of fraud in which investors were led to believe
they were purchasing a safe investment that
paid an attractive, tax-free rate of return,”
said Director Gramiccioni. “In reality,
the investments were fraudulent and Smith
diverted millions of dollars in client funds
for his personal use.”
Superior
Court Judge Salem Vincent Ahto ordered Smith
to appear before him in Morris County on May
18 to answer the charges.
First-degree
money laundering carries a maximum sentence
of 20 years in state prison and a $500,000
fine, while second-degree crimes carry a maximum
sentence of 10 years in prison and a $150,000
fine. The complaint is merely an accusation
and the defendant is presumed innocent until
proven guilty.
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