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What you need to know for 07/21/2017

Sentencing in McGinn-Smith securities fraud, tax case postponed

Sentencing in McGinn-Smith securities fraud, tax case postponed

Attorneys for convicted investment brokers Timothy McGinn and David Smith will have until August to

Attorneys for convicted investment brokers Timothy McGinn and David Smith will have until August to prepare for their sentencing on fraud and tax evasion charges, but it’s the last extension they’ll get.

U.S. District Court Judge David Hurd granted an adjournment until Aug. 8 for the sentencing that was originally scheduled for late June. In granting a postponement, Hurd also indicated he will no longer entertain any further requests to delay the proceeding.

In February, McGinn was found guilty of conspiracy to commit mail fraud; conspiracy to commit mail and wire fraud; wire fraud; securities fraud; and filing a false tax return — in total, 27 of 29 counts against him. Smith was facing the same charges but convicted of only 15 counts. Both men now face up to 10 years in prison.

During the trial, federal prosecutors outlined how the business partners 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 by 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 large sums of money when the scheme collapsed.

The defense team representing McGinn and Smith maintained the losses resulted from the economic collapse. They claimed the partners were in the process of recouping some of the losses when the government clamped down on their business.

Last month, attorneys William Dreyer and E. Stewart Jones requested the sentencing for Smith be pushed back until a proper accounting can be made of the losses incurred by investors defrauded in the case. Jones, who represents McGinn, accused the U.S. Attorney’s Office of “quadrupling” the loss calculation included in the original 30-count indictment in the case.

“The letter is short, consisting of approximately 20 lines, and affords no breakdown specific to investor or trust with respect to the quadrupling of the amount set forth in the indictment,” he wrote in the request to the court.

Jones said subsequent requests to the court-appointed receiver for a detailed accounting of the losses haven’t helped to identify why the calculation increased. He characterized the receiver’s responses to his queries as being incomplete and incompatible with determining a full valuation of the partners’ assets.

“The receiver’s responses when provided have not been helpful to any fair, balanced, reasonable and correct analysis and projection of loss calculation,” he wrote.

Dreyer, who filed a request on the behalf of Smith, made a similar argument and asked that sentencing be postponed until September. He also claimed the amount owed in back taxes by his client related to his conviction on filing a false tax return hadn’t been accurately tallied yet and that his payment of this sum would be a mitigating factor at sentencing.

In addition, Dreyer argued Lynn Smith, his client’s wife, will need more time to get her family’s affairs in order in the event her husband is sent to prison. He also cited Smith’s need to prepare for the pending civil case against him and McGinn that was filed by the U.S. Securities and Exchange Commission in the years preceding their criminal indictment.

“Mr. Smith must have the ability to prepare the defenses which will require additional motions to the Magistrate and potentially a trial on the civil matter,” he wrote in the May 24 filing. “To deny Mr. Smith the ability to do so unfairly places the onus on Mrs. Smith, who does not have the knowledge concerning the related financial transactions and resultantly compromises her defense.”

But prosecutors disagreed, arguing the defense team had more than four months to account for the total losses they figured to be $30.2 million.

They argued the support for this figure calculation was always available for them to review.

They also indicated the amount owed in taxes by Smith had been calculated and provided to him in late April, and that he had plenty of time to set his affairs in order when the first civil action was taken against him more than three years ago.

“The hundreds of victims of the lengthy, pervasive, and devastating fraud committed by the defendants are anxious for the sentencing hearings to occur as soon as possible,” Assistant U.S. Attorney Elizabeth Coombe stated in court documents. “They should not be required to wait for their opportunity to be heard and for the defendants to finally be punished.”

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