Partners guilty in fraud case

Scammed millions from public investors

Wednesday, February 6, 2013
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Timothy M. McGinn, left, and David L. Smith, center, walk out of James T. Foley Federal Courthouse in Albany with their attorney E. Stewart Jones, right, on Friday, January 27, 2012.
Photographer: Patrick Dodson
Timothy M. McGinn, left, and David L. Smith, center, walk out of James T. Foley Federal Courthouse in Albany with their attorney E. Stewart Jones, right, on Friday, January 27, 2012.

— David Smith and Timothy McGinn stared forward expressionlessly as the jury foreman read the verdict.

McGinn was up first: Guilty of conspiracy to commit mail fraud, guilty of conspiracy to commit mail and wire fraud, wire fraud, securities fraud and filing a false tax return — 27 counts in all.

Then the foreman turned to Smith, declaring him guilty on 15 counts, including many of the same charges.

Seated at separate tables, the disgraced business partners accepted the verdict silently and without visible emotion in the mostly empty federal courtroom. Afterward, McGinn hugged his sister, who sat by him during the verdict. Smith embraced his wife, Lynn, and his son Geoff, who testified in his father’s defense during the complex, five-week trial.

After nearly four days of deliberation, jurors determined there was enough evidence to prove the partners had illegally siphoned more than $4.1 million from investors — people from all walks of life — and then moved to cover their tracks when federal regulators began probing their scheme. The panel of six men and nine women also found McGinn and Smith had purposely misled clients about their investments, even convincing them to put money into a trust supporting an insolvent company nearing bankruptcy.

“With today’s guilty verdict against Timothy McGinn and David Smith, a measure of justice has been achieved for the many investors who placed their trust and, in many cases, their life savings in these two men and their brokerage firm,” U.S. Attorney Richard Hartunian said after the verdict was reached. “Though the harm they have caused may never be fully undone, this verdict sends the strong message that fraudulent business practices and tax cheating will not be tolerated.”

Both partners face up to 15 years in prison when sentenced in Utica on June 28. They were each released on $100,000 unsecured bond following the verdict.

The partners were exonerated on some of the charges included in the federal indictment. Smith, 67, of Saratoga Springs, was found not guilty of six counts of mail fraud and eight counts of wire fraud; McGinn, 64, formerly of Niskayuna and now living in Florida, was found not guilty of two counts of mail fraud.

Neither man would comment following the verdict. William Dreyer, Smith’s attorney, also declined to discuss the verdict.

McGinn’s attorney, E. Stewart Jones, called the verdict “tragically wrong” and vowed to appeal. He criticized the justice system for what he described as its inability to properly handle the complex financial cases arising from the national recession.

“I don’t think the justice system is capable of dealing with federal crimes of this type,” he said. “Look at the results of these cases around the country. None of these cases resulted in acquittal. Any number of them should have. This should have.”

During the trial, federal prosecutors outlined how the business partners of more than three decades ordered company accountants to create backdated documents and bogus promissory notes as examiners with the Financial Industry Regulatory Authority began to probe their dealings.

The documents, prosecutors said, were a desperate attempt for McGinn and Smith to legitimize a business that paid them handsomely with untaxed fees they took from the dozens of entities they used to attract investors — many of whom would later lose vast sums of money when the scheme collapsed. In total, they were accused of misleading clients about roughly $37 million that was invested in 17 trust funds.

The case against the partners was bolstered by convictions landed by federal prosecutors against former executives of the firm, who agreed to testify. Brian Shea, the company’s former chief financial officer, who admitted to tax fraud in July, testified that Smith directed him to create false accounting entries to conceal money being improperly diverted from an escrow account.

Also testifying was former senior managing partner Matthew Rogers, who federal prosecutors said was given some of the proceeds siphoned from investors through exorbitant fees. He admitted to filing a falsified tax return on behalf of Smith and his wife.

Jones and Dreyer blamed the case on the failure of the government to understand a complex business model employed by the firm. They argued the collapse of the national economy was the real culprit behind the investors’ losses and that federal investigators used lucrative plea deals to forge a bogus case.

McGinn and Smith still face a civil action initially brought against them by the U.S. Securities and Exchange Commission in April 2010. The civil case claims McGinn and Smith orchestrated a scheme to raise more than $136 million from more than 900 investors by conducting more than 20 fraudulent debt offerings in four funds and various trusts.

But the conviction did little to pacify victims in the case, some of whom lost their life savings. Shirley Reindollar, a retired nurse from Pennsylvania, scoffed at the verdict, saying it won’t help recover all the money she and her husband, Fern, tirelessly tucked away before they retired.

Now in their 70s, the Reindollars spent years planning for retirement. She said they purposely put money into investments they were told were safe — low-risk individual retirement accounts that would grow gradually.

“It was pretty much our life savings,” she lamented during a phone interview Wednesday. “At this point, we’re living on our pension and social security.”

The Reindollars are hoping some of their money will be recovered during the civil proceedings but fear the hundreds of thousands of dollars in legal fees McGinn and Smith were allowed to spend has significantly winnowed down what could ultimately be recovered.

“They get 15 years, and we have the rest of our lives to live without the investment we thought we had,” she said. “I’m disappointed.”

 

comments

February 7, 2013
7:35 a.m.
stockadian says...

If you happened to catch the elderly gentleman on local television who invested with these scammers who now has nothing, while these two go back to their upper middle class homes waiting for their summer sentencing date, you can't help but wonder what is wrong with that picture!

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