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TRENTON
– Attorney General Anne Milgram announced
that a Monmouth County financial advisor pleaded
guilty today to defrauding investment clients
out of millions of dollars through a Ponzi
scheme.
According
to Criminal Justice Director Deborah L. Gramiccioni,
Maxwell B. Smith III, 69, of Fair Haven, pleaded
guilty to a charge of first-degree money laundering
before Superior Court Judge Thomas V. Manahan
in Morris County. The Division of Criminal
Justice Major Crimes Bureau initially charged
Smith on May 8, 2009.
Under
the plea agreement, the state will recommend
that Smith be sentenced to 15 years in state
prison, including five years of parole ineligibility.
Deputy Attorney General Andrew C. Fried took
the plea for the Division of Criminal Justice.
Smith is scheduled to be sentenced by Judge
Manahan on March 5.
In
a global resolution of the case, Smith pleaded
guilty yesterday before U.S. District Judge
Mary L. Cooper to charges of mail fraud brought
by the U.S. Attorney’s Office for the
District of New Jersey. Under the global resolution,
Smith must pay restitution to his victims
of $7,847,823, which represents the amount
taken from investors less amounts he returned
to the investors as purported interest. Smith
faces a federal prison sentence to be determined
by the federal court judge. The state and
federal sentences will run concurrently.
“This
investment broker stole millions of dollars
from elderly clients, callously betraying
the trust they placed in him as their longtime
financial advisor,” said Attorney General
Milgram. “In pleading guilty to these
charges, Smith faces a lengthy prison sentence
and must pay full restitution to his victims.”
Smith
also entered into an administrative consent
order with the New Jersey Bureau of Securities
as a separate action, which was signed today
by Bureau Chief Marc B. Minor. The consent
order provides for the payment of restitution
and permanently bars Smith from working in
the securities industry in New Jersey.
In
pleading guilty today to money laundering,
Smith admitted that he defrauded investors
and used their money for his personal expenses,
laundering the stolen investor funds through
bank accounts he controlled.
An
investigation by the New Jersey Division of
Criminal Justice Major Crimes Bureau revealed
that Smith defrauded at least a dozen mostly
elderly investors of approximately $9.8 million
between 1992 and 2009. Smith used investor
funds for personal expenses that included
fine dining, entertainment, about $400,000
in mortgage payments on his home and a relative’s
home, $120,000 in home renovations, $78,000
for luxury furnishings for his home, and rental
payments for a villa in Gordes, France, for
several weeks each summer for almost 15 years.
“The
Division of Criminal Justice has been focusing
on more complex white collar crime cases,
including securities fraud cases such as this
one,” said Director Gramiccioni. “In
bringing these cases, our goal is to protect
investors and send a strong message that we
will vigorously prosecute financial crimes.”
Detective
Sgt. Louis A. Matirko and Deputy Attorney
General Fried conducted and coordinated the
investigation for the Division of Criminal
Justice Major Crimes Bureau. Assistance was
provided by Troy Romanowski.
Since
1974, Smith had been a registered agent with
numerous broker-dealer firms registered o
sell investment products in New Jersey. Smith
worked for a 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.
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 $9.8 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
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 bona
fide. 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.
Deputy
Attorney General Toral M. Joshi represented
the New Jersey Bureau of Securities in connection
with the administrative consent order. Rudolph
G. Bassman, Chief of Enforcement, and Investigators
Michael McElgunn, Richard Smullen and William
Hoefling conducted the investigation for the
Bureau of Securities.
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