NEWARK
– The Office of the Attorney General
through the New Jersey Bureau of Securities,
within the Division of Consumer Affairs, has
filed new charges in a lawsuit pending in
State Superior Court, alleging that several
individuals defrauded dozens of investors
after raising approximately $8.5 million and
by operating a Ponzi scheme, and using some
of the funds for their own personal enrichment.
According
to the First Amended Verified Complaint,
the fraudulent scheme involved the sale
of allegedly secure three-year notes, promising
12 percent annual rates of return, to 73
investors, many of whom were elderly and
retired The First Amended Verified Complaint
alleges that, in fact, none of the defendants
or the securities were registered with the
Bureau, as required by the state’s
Uniform Securities Law, and the investor
funds that were raised were misused, in
part, to pay other existing investors.
Additionally,
approximately $5 million in investor funds
was allegedly “improperly transferred,”
in whole or in part, to certain defendants,
members of their families, and a law firm
controlled by one of the defendants.
“We
allege that these investors sought secure
investments but instead, fell victims to
a scam by individuals looking to unjustly
enrich themselves,” Attorney General
Paula T. Dow said. “We’re working
to obtain restitution for the defrauded
investors, plus assessment of civil penalties
against the defendants.”
In
March, the Bureau filed suit against Liberty
State Financial Holdings Corporation (LSFHC)
and a wholly-owned subsidiary, Liberty State
Benefits of Pennsylvania, Inc. (LSBPA).
LSFHC is based in Cherry Hill, N.J. The
First Amended Verified Complaint, filed
in Essex County, adds the following individuals
as defendants:
Michael
William Kwasnik, Esq.
-
New Jersey and Pennsylvania licensed attorney
-
Former Corporate Counsel to LSFHC and
LSBPA
-
Former Chairman of the Board of Directors
of LSFHC (under its prior name)
-
Resident of Philadelphia, age 42
William
Kwasnik
-
Father of Michael W. Kwasnik
-
CEO of LSFHC during time of the alleged
conduct
-
President of LSBPA during time of the
alleged conduct
-
Resident of Marlton, N.J., age 70
Joseph Anthony Schifano
-
Former registered agent of a broker-dealer
-
Resident of Brick, N.J., age 45
Daniel Francis McCorry
-
Former registered agent of a broker-dealer
-
Resident of Ventnor, N.J., age 55
William P. Leonard
-
Secretary and Treasurer, Capital Conservation
Associates, Inc.
-
Former Chairman of the Board of Directors
of LSFHC (under its prior name)
-
Former registered agent of a broker-dealer
-
Resident of Cherry Hill, age 83
The
Bureau alleges that in targeting their victims,
the defendants sought to exploit the trust
established through previous business and/or
legal relationships. According to the First
Amended Verified Complaint, Michael W. Kwasnik,
an attorney, sold some notes to individuals
he met through providing them with legal
services. He also served as a trustee controlling
the assets of certain trusts and is believed
to have used his power as trustee to purchase
notes on behalf of these trusts.
Investors
were allegedly told that funds raised by
sale of the three-year notes ioffered by
LSBPA would be used to purchase life insurance
policies and beneficial interests in Irrevocable
Life Insurance Trusts. In reality, the First
Amended Verified Complaint alleges, approximately
$5 million in investor funds were transferred
to Michael W. Kwasnik’s law firm,
and to Michael W. Kwasnik, William Kwasnik,
and various relatives for their personal
enrichment, while other funds were used
to pay existing investors in classic Ponzi
fashion, among other things.
“We
allege that the defendants betrayed the
trust placed in them by their clients, and
that greed motivated their actions to defraud
these elderly investors of the nest eggs
they had built up over their lifetimes,”
said Thomas R. Calcagni, Director of the
State Division of Consumer Affairs. “We’re
taking action to hold the defendants accountable
and to help the victims of this alleged
fraud.”
At
the Bureau’s request, and with the
consent of LSFHC and LSBPA, the Court appointed
a fiscal agent to oversee LSFHC and LSBPA
this March. In July, the two defendant companies
filed for Chapter 11 bankruptcy, and the
Court appointed a bankruptcy trustee in
September.
Defendants
Schifano and McCorry were both disciplined
by the Bureau in 2005, under an enforcement
action unrelated to the present case.
“I
cannot overstate the importance of performing
due diligence before investing any money.
Investors should contact us to check whether
the person offering the security, and the
security itself, are registered,”
said Abbe R. Tiger, Chief of the N.J. Bureau
of Securities.
Deputy
Attorneys General Victoria A. Manning and
Stacy-Ann T. Davy of the Securities Fraud
Prosecution Section are representing the
Bureau in this case. The investigation was
conducted by Bureau Investigators Michael
LaChapelle and Leon Martin.
The
Bureau of Securities can be contacted toll-free
within New Jersey at 1-866-I-INVEST
(1-866-446-8378) or from outside New Jersey
at 973-504-3600. The Bureau's
web site is located at www.NJSecurities.gov
.
The
Attorney General’s Office also announced
action today against defendant Michael W.
Kwasnik in a separate, criminal indictment
filed by the Division of Criminal Justice.
Michael Kwasnik was indicted and arrested
on charges he stole more than $1 million
from a client. A copy of the press release
about the indictment and arrest can be found
at www.njpublicsafety.com.
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