David Smith and Timothy McGinn will remain in prison to serve their sentences after a federal appeals court Friday upheld their conspiracy and fraud convictions.
The Second Circuit U.S. Court of Appeals, based in New York City, ruled a letter used against the pair at trial was improperly admitted by the presiding judge, but use of the letter by prosecutors was harmless in light of “substantial evidence” presented by prosecutors of their guilt. The ruling means McGinn will continue serving his 15-year sentence and Smith his 10-year sentence.
The two were convicted in February 2013 of multiple counts related to their actions with McGinn, Smith & Co. of Albany, once one of the region’s premier brokerage firms. A federal jury found they illegally siphoned more than $4.1 million from investors and tried to cover their tracks when federal regulators began moving in.
The two together were ordered to pay $5.74 million in restitution to victims.
McGinn and Smith appealed multiple aspects of their convictions, arguing primarily the proof of criminal intent was insufficient. A key issue in their appeal was the letter they argued shouldn’t have been admitted.
The letter was dated 1999 and written by Smith to McGinn, though there was no evidence it was ever sent. In the letter, Smith indicates unease with McGinn’s actions, even calling what was happening a “Ponzi scheme.”
But the letter was written seven years before the timeframe of allegations in the case at trial. The judge allowed portions, finding McGinn and Smith opened the door to it through their testimony.
The appeals court found the judge should not have allowed the letter without context or special instructions, but given the other evidence presented, that was not enough for the entire case to be overturned, the court ruled.
“When considered in the context of a record containing substantial evidence of the defendants’ guilt, we cannot conclude that the improper use of the document had a substantial impact on the result of the trial,” the court wrote.
McGinn was represented on appeal by attorney James Knox, Smith by attorney Justin Weddle. Knox could not be reached for comment Friday, while Weddle declined comment.
The two were convicted after a nearly five-week trial in 2013. 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 investigate 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 lose vast sums of money.
The federal case focused on about $30.2 million in losses from 17 trust funds. The partners swindled roughly $6.3 million from investors to use for their own purposes.
Smith was ultimately convicted of 15 counts of conspiracy, wire fraud, securities fraud and filing a false tax return. McGinn was convicted of 27 counts.
In all, 841 victims were identified. About 60 of those sent impact statements for the 2013 sentencings.
McGinn and Smith lost on other aspects of their appeal, as well. The court found the evidence sufficient to convict on each of the counts the two were found guilty of. Among the arguments was that there was insufficient evidence to demonstrate intent to defraud.
The court responded to the arguments for each set of charges, finding no merit in them. Instead, the court found prosecutors showed the two induced investors to put money into particular trusts and told them the money would be used for limited, specified purposes.
“Instead,” the appeals court wrote, “defendants transferred significant amounts of investors’ money to their personal accounts and used them for purposes unrelated to the reasons they were invested. These facts supplied a reasonable basis upon which a jury could conclude that the defendants acted willfully.”
The court found a minor error in instructions given to the jury on a particular set of counts, but not enough to overturn those convictions.
The court also found McGinn’s sentence of 15 years a reasonable one and let it stand.