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The state attorney general announced Monday that new charges have been filed in a lawsuit pending in state Superior Court, alleging that five men defrauded dozens of investors after raising approximately $8.5 million and by operating a Ponzi scheme, and using some of the money for their own personal enrichment.

According to the complaint, the fraudulent scheme involved the sale of allegedly secure three-year notes, promising 12 percent annual rates of return, to 73 investors, many of whom were elderly and retired. The complaint alleges that, in fact, none of the defendants or the securities were registered with the state Bureau of Securities as required by the state’s Uniform Securities Law, and the investor funds that were raised were misused, in part, to pay other investors.

Additionally, approximately $5 million in investor funds was allegedly “improperly transferred,” to some of the men, members of their families, or a law firm controlled by one of the defendants.

“We allege that these investors sought secure investments but instead, fell victims to a scam by individuals looking to unjustly enrich themselves,” Attorney General Paula T. Dow said. “We’re working to obtain restitution for the defrauded investors, plus assessment of civil penalties against the defendants.”

In March, the securities Bureau filed suit against Liberty State Financial Holdings Corp. of Cherry Hill and a wholly-owned subsidiary, Liberty State Benefits of Pennsylvania Inc. The complaint, filed in Newark, adds these individuals as defendants:

Michael W. Kwasnik, 42, of Philadelphia, a New Jersey and Pennsylvania attorney, former counsel to LSFHC and LSBPA, and former chairman of the LSFHC Board of Directors (In a separate action, Kwasnik was hit with a criminal indictment filed by the state Division of Criminal Justice that accuses him of stealing more than $1 million from a client.)

William Kwasnik, 70 of Marlton, father Michael W. Kwasnik, CEO and president of LSFHC during time of the alleged conduct

Joseph A. Schifano, 45 of Brick, former registered agent of a broker-dealer

Daniel F. McCorry, 55, of Ventnor, former registered agent of a broker-dealer

William P. Leonard, 83, of Cherry Hill, secretary and treasurer of Capital Conservation Associates Inc., former chairman of the LSFHC Board of Directors, former registered agent of a broker-dealer

The securities Bureau alleges that in targeting their victims, the men sought to exploit the trust established through previous business and/or legal relationships.

According to the complaint, Michael Kwasnik, an attorney, sold some notes to individuals he met through providing them with legal services. He also served as a trustee controlling the assets of certain trusts and is believed to have used his power as trustee to purchase notes on behalf of these trusts.

Investors were allegedly told that funds raised by sale of the three-year notes offered by LSBPA would be used to purchase life insurance policies and beneficial interests in Irrevocable Life Insurance Trusts. In reality, the complaint alleges, approximately $5 million in investor funds were transferred to Michael Kwasnik, his law firm, William Kwasnik, and various relatives for their personal enrichment, while other funds were used to pay existing investors in classic Ponzi fashion, among other things.

“We allege that the defendants betrayed the trust placed in them by their clients, and that greed motivated their actions to defraud these elderly investors of the nest eggs they had built up over their lifetimes,” state Consumer Affairs Director Thomas R. Calcagni said. “We’re taking action to hold the defendants accountable and to help the victims of this alleged fraud.”

At the request of the Securities Bureau and with the consent of LSFHC and LSBPA, the court appointed a fiscal agent to oversee the two companies in March. In July, the companies filed for bankruptcy, and the court appointed a bankruptcy trustee in September.

Schifano and McCorry were both disciplined by the Securities Bureau in 2005, under an enforcement action unrelated to the present case.

“I cannot overstate the importance of performing due diligence before investing any money state Securities Chief Abbe R. Tiger said. “Investors should contact us to check whether the person offering the security, and the security itself, are registered.”

Deputy Attorneys General Victoria A. Manning and Stacy-Ann T. Davy of the Securities Fraud Prosecution Section are representing the state in the case. The investigation was conducted by Securities Bureau Investigators Michael LaChapelle and Leon Martin.

—TOM HESTER SR., NEWJERSEYNEWSROOM.COM