Monmouth County Financial Adviser Gets 15 Years For $9.8 Million Ponzi Scheme

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TRENTON – A Monmouth County financial adviser was sentenced to 15 years in prison today for defrauding investment clients of $9.8 million in a Ponzi scheme, Acting Attorney General John J. Hoffman announced.

Maxwell B. Smith III, 73, of Fair Haven, was sentenced to 15 years in prison, including five years of parole ineligibility, by Superior Court Judge Mary Gibbons Whipple in Morris County. He pleaded guilty on Nov. 18, 2009 to a state charge of first-degree money laundering. The Division of Criminal Justice initially charged Smith in May 2009. Deputy Attorney General Andrew C. Fried prosecuted the case and handled the sentencing for the Division of Criminal Justice Financial & Computer Crimes Bureau.

Smith’s guilty plea in state court was part of a global resolution in which he pleaded guilty at the same time in federal court to charges of mail fraud brought by the U.S. Attorney’s Office for the District of New Jersey. On June 5, he was sentenced to seven years in federal prison by U.S. District Judge Mary L. Cooper in Trenton. The state sentence will run concurrently with the federal sentence. Under the global resolution, Smith must pay restitution to his victims of $7,847,823, which represents the amount taken from investors less amounts he returned as purported interest.

The New Jersey Bureau of Securities conducted a separate regulatory investigation of Smith. Smith entered into an administrative consent order with the Bureau of Securities that provides for payment of restitution and permanently bars him from working in the securities industry in New Jersey.

“Our global resolution with the U.S. Attorney’s Office of the state and federal charges against Smith has ensured that he will serve a lengthy prison sentence for his crimes, which caused financial devastation for these vulnerable victims,” said Acting Attorney General Hoffman. “These elderly clients trusted Smith as their financial adviser, and he rewarded their trust by stealing their life savings.”

“We will continue to make prosecuting these financial fraud cases a priority in order to protect hardworking New Jersey residents as they save and invest for retirement and their children’s education,” said Director Elie Honig of the Division of Criminal Justice. “We urge investors to be wary and to report suspected fraud to the Division of Criminal Justice or the Bureau of Securities.”

In pleading guilty to money laundering, Smith admitted that he defrauded investors and used their money for his personal expenses, laundering the funds through bank accounts he controlled. An investigation by the Division of Criminal Justice revealed Smith defrauded at least a dozen mostly elderly investors of about $9.8 million between 1992 and 2009. He used investor funds for personal expenses that included fine dining, entertainment, about $400,000 in mortgage payments on his home and a relative’s home, $120,000 in home renovations, $78,000 for luxury furnishings, and rental payments for a villa in Gordes, France, for several weeks each summer for almost 15 years.

Fried and retired Detective Sgt. Louis A. Matirko conducted and coordinated the investigation for the Division of Criminal Justice.

Since 1974, Smith had been a registered agent with numerous broker-dealer firms registered to sell investment products in New Jersey. Smith worked for a 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.

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. 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, the investments did not exist. They were part of a Ponzi scheme by which Smith misappropriated approximately $9.8 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 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 bona fide. 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.

Deputy Attorney General Toral M. Joshi represented the New Jersey Bureau of Securities in connection with the administrative consent order. Rudolph G. Bassman, Chief of Enforcement, and Investigators Michael McElgunn and Richard Smullen conducted the investigation for the Bureau of Securities.


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