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What you need to know for 01/22/2018

‘Substantial’ prison terms sought in fraud case against McGinn, Smith

‘Substantial’ prison terms sought in fraud case against McGinn, Smith

Federal prosecutors are asking a U.S. District Court judge to hand convicted investment brokers Timo

Federal prosecutors are asking a U.S. District Court judge to hand convicted investment brokers Timothy McGinn and David Smith “very substantial” prison terms for defrauding hundreds of investors.

In a 13-page sentencing memorandum filed Wednesday, prosecutors cited the “particularly egregious” nature of their fraud and the trust they breached with their investors. And while prosecutors didn’t recommend a specific sentence, they asked the court to impose a lengthy sentence and issue an order that will require the longtime business partners to pay restitution in full to those they were convicted of defrauding.

“This court’s sentence should make plain to the community that pervasive and lengthy fraudulent schemes causing more than $30 million of loss to more than 800 victims, like those created by defendants, will result in very substantial periods of incarceration,” Assistant U.S. Attorney Elizabeth Coombe wrote in the memorandum.

The memorandum also details the struggles some of the victims — including many elderly couples — have encountered since losing their savings through the failed investments with McGinn, Smith & Co. These include a cancer patient worried about where to find money for chemotherapy treatments, a couple forced into a reverse mortgage in order to remain in their retirement home, a 71-year-old husband who had to return to the workforce and a couple that no longer has the financial means to pay for their health care.

“Dozens of other victims reported life-shattering events as a result of the fraud, including postponing retirement, returning to work, selling homes, borrowing money from family, reneging on plans to pay children’s college tuition, and foregoing care for relatives and loved ones,” Coombe stated. “The money these victims depended on was squandered by defendants, whose illegal use of investor money resulted in the loss of tens of millions of dollars of investor funds.”

Defense attorneys for both McGinn, 64, and Smith, 68, indicated in letters to the court they have submitted their sentencing memorandums, but neither was publicly disclosed. E. Stewart Jones, the attorney for McGinn, said he asked for the memorandum to be sealed until the sentencing in Utica on Aug. 7.

“I’m disappointed [prosecutors] didn’t do that, as well,” he said.

Jones declined to discuss the prosecution’s memorandum or what he’d argue for as an appropriate sentence for his client. William Dreyer, the attorney representing Smith, did not return a call.

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 was convicted of only 15 counts.

During the trial, 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 look into 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 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 maintains the losses resulted from the collapse of the financial markets. They claimed the partners were in the process of recouping some of the losses when the government clamped down on their business.

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