May 8, 2009
Authorities in New Jersey have charged a Monmouth County financial advisor with defrauding investment clients out of millions of dollars through a Ponzi scheme.
Maxwell B. Smith III of Fair Haven, New Jersey, was charged by summons complaint with first-degree money laundering, second-degree securities fraud and second-degree theft by deception. The charges, filed in Superior Court in Morris County, resulted from an investigation by the Division of Criminal Justice Major Crimes Bureau.
According to a certification filed in court, Smith allegedly defrauded at least 13 mostly elderly investors out of approximately $10 million between 1992 and 2009 by selling them fraudulent investments. Smith allegedly laundered the stolen investor funds through bank accounts he controlled and used the funds for his personal expenses.
"This defendant ruthlessly preyed on elderly investors, targeting longtime clients who trusted him to look out for their interests," said Attorney General Anne Milgram. "Instead, Smith deceived them and stole their money, in some instances depriving retired investors of their life savings."
Since 1974, Smith has been a registered agent and investment representative with numerous broker dealer firms licensed to sell investment products in New Jersey. Smith worked for an investment firm based in Tinton Falls from January 2005 to April 2009, when the firm fired him and reported his alleged fraudulent conduct to securities regulators, Milgram said.
Since 1992, Smith marketed investments he called "Health Care Financial Partnership Direct Municipal Loans." He represented that Health Care Financial was an entity that made investments involving the financing and refinancing of health care facilities such as nursing homes and continuing care retirement centers for the elderly.
Milgram said Smith represented that the investments were safe and free from federal income tax, and he promised semi-annual interest payments of 7.5 percent to 9 percent. In fact, she says, the investments did not exist. They were part of a Ponzi scheme by which Smith misappropriated approximately $10 million in investor funds.
The investigation revealed that the victims were instructed by Smith to make their investment checks payable to "Merrill Lynch" and send them to Health Care Financial at an address he provided in New York, which was actually a Mail Boxes Etc. mail drop leased by Smith.
Smith allegedly deposited the investor funds into a Merrill Lynch bank account in his name. Instead of investing the funds for the investors, Smith allegedly laundered the funds through a series of financial transactions to other bank accounts he controlled, using a small portion of the victims' own funds to pay them interest on the bogus investments. The interest payments provided a false impression to the victims that their investment with Smith was bonafide.
The investigation also revealed that Smith created a false "Summary of Essential Information" prospectus for the Health Care Financial investment which he provided to the victims, as well as false investment confirmation letters sent to them after they invested their funds.
First-degree money laundering carries a maximum sentence of 20 years in state prison and a $500,000 fine, while second-degree crimes carry a maximum sentence of 10 years in prison and a $150,000 fine.