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What you need to know for 07/26/2017

Trial opens today in $9M investment fraud case

Trial opens today in $9M investment fraud case

Business partners Timothy McGinn and David Smith seemed to be on top of the world when the U.S. econ

Business partners Timothy McGinn and David Smith seemed to be on top of the world when the U.S. economy was flying.

At the height of their prosperity, the longtime business partners had affluent homes, owned expensive country club memberships and bought thoroughbred racehorses. Their wealth even carried them into the cruise line business — investing in a company later described as a “sexually-oriented charter cruise venture” in federal court documents.

Then the national recession touched down in 2007. And it came with a steep decline in their fortunes.

In 2010, the U.S. Securities and Exchange Commission accused the partners of the Albany-based McGinn and Smith & Co. of operating a complex Ponzi scheme through fraudulent debt offerings.

The civil case against the partners was followed by a 30-count criminal indictment returned in federal court in January 2011, accusing McGinn and Smith of siphoning more than $8 million from investors to fuel their lavish lifestyles; an additional two-count indictment returned in October accuses the two of bilking an additional $1 million.

But the defense team representing the partners believe there’s a simpler explanation. They argue McGinn and Smith fell victim to the same financial crash that lost their investors tens of millions of dollars after the national economy tanked.

“But for the economic collapse, none of this would have happened,” said E. Stewart Jones, the attorney representing McGinn.

The jury draw for the trial begins this morning in U.S. District Court in Utica, with opening arguments beginning sometime later in the afternoon or on Tuesday. The trial is expected to last up to four weeks, with testimony delivered Monday through Thursday.

A lot will be hanging in the balance for the partners during the trial. Some of the charges in the indictment carry penalties of up to 30 years in prison and a $1 million fine.

The trial originally slated for March 2012 was delayed on several occasions. The defense attorneys sought additional delays last fall, citing that federal prosecutors were introducing roughly 6,000 pages of evidence and planning to call 91 witnesses to the stand during the trial.

But U.S. District Court Judge David Hurd refused to prolong the case, which has kept the SEC case frozen since March. A call placed to prosecutors was not retuned Friday.

Federal prosecutors claim the money McGinn and Smith skimmed from $37 million invested into 17 private trust funds later meant drastic losses for their clients, some of whom had trusted the brokerage firm with their retirement funds. More than a quarter of the total amount invested into the trust funds went to benefit the firm through fees, or money transferred into their own accounts, according to the indictment.

The federal investigation into the firm has already landed three convictions.

Last year, former senior managing partner Matthew Rogers pleaded guilty to the misdemeanor charge of filing a falsified tax return on behalf of Smith and his wife, Lynn.

Around the same time, Binghamton accountant Ronald Simons pleaded guilty to a misdemeanor tax fraud count, acknowledging that he filed a false income tax return on behalf of the Smiths.

In July, former Chief Financial Officer Brian Shea acknowledged that he submitted backdated promissory notes to a regulatory agency regarding money that McGinn and Smith had improperly diverted in connection with offerings of unregistered securities. As part of his plea, Shea admitted that Smith directed him to create the false entries to conceal money being improperly diverted from an escrow account to McGinn.

Shea and Rogers are both due to be sentenced in March. Simons is scheduled to be sentenced Jan. 22, according to court documents.

Jones said McGinn, 64, and Smith, 67, are in the Capital Region for the trial.

He said both are anxious for the outcome.

“It’s bewildering to them how any of this could have happened,” he said.

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