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Financial advisor from Monmouth County pleads guilty to stealing $9.8 million, mainly from elderly clients

A Monmouth County financial advisor pleaded guilty Wednesday to defrauding investment clients out of $9.8 million through a Ponzi scheme, state Attorney General Anne Milgram announced.

Maxwell B. Smith III, 69, of Fair Haven, pleaded guilty to a charge of first-degree money laundering before state Superior Court Judge Thomas V. Manahan in Morristown. The state Division of Criminal Justice initially charged Smith on May 8.

Under a plea agreement, the state will recommend that Smith be sentenced to 15 years in state prison, including 5 years of parole ineligibility. Smith is scheduled to be sentenced by Manahan on March 5.

In a global resolution of the case, Smith pleaded guilty Tuesday before U.S. District Judge Mary L. Cooper to charges of mail fraud brought by the New Jersey U.S. Attorney's Office. Under the global resolution, Smith must pay $7.84 million in restitution to his victims, which represents the amount taken from them less amounts he returned to the investors as purported interest.

Smith faces a federal prison sentence to be determined by the federal court judge. The state and federal sentences will run concurrently.

"This investment broker stole millions of dollars from elderly clients, callously betraying the trust they placed in him as their longtime financial advisor," Milgram said. "In pleading guilty to these charges, Smith faces a lengthy prison sentence and must pay full restitution to his victims."

Smith also entered into an administrative consent order with the New Jersey Bureau of Securities as a separate action, which was signed Wednesday. The consent order provides for the payment of restitution and permanently bars Smith from working in the securities industry in New Jersey.

In pleading guilty Wednesday to money laundering, Smith admitted that he defrauded investors and used their money for his personal expenses, laundering the stolen investor funds through bank accounts he controlled.

An investigation by the Division of Criminal Justice's Major Crimes Bureau revealed that Smith defrauded at least a dozen mostly elderly investors of the $9.8 million between 1992 and this year. Smith used investor funds for, among other things, 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 for his home, and rental payments for a villa in Gordes, France, for several weeks each summer for almost 15 years.

"The Division of Criminal Justice has been focusing on more complex white collar crime cases, including securities fraud cases such as this one," said Director Deborah L. Gramiccioni. "In bringing these cases, our goal is to protect investors and send a strong message that we will vigorously prosecute financial crimes."

Deputy Attorney General Andrew C. Fried handled the prosecution of Smith. Det. Sgt. Louis A. Matirko and Deputy Attorney General Fried conducted and coordinated the investigation.

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 2005 to April, 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 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.

— TOM HESTER SR., NEWJERSEYNEWSROOM.COM