Securities Law Daily provides daily coverage of developments in the regulation of federal, state, and international securities and futures trading, with objective coverage of the...
April 18 — The wife of convicted securities fraudster David Smith, the former CEO of an Albany-based broker-dealer who allegedly defrauded investors of more than $80 million, lost her bid April 18 to avoid disgorgement of the assets of a stock account held in her name.
Lynn Smith will have to disgorge the entire value of the stock account, rather than only half of the account, the U.S. Court of Appeals for the Second Circuit affirmed in a summary order. In addition, David Smith's argument that the amount of disgorgement in the civil enforcement action should be limited by the amount awarded in restitution in the criminal case is “unpersuasive,” the court said.
In April 2010, the SEC sued David Smith, and his business partner, Timothy McGinn, of McGinn Smith & Co. for fraudulently selling tens of millions of dollars worth of unregistered securities between 2003 and 2006. David Smith and McGinn allegedly sold income notes to investors through fake securities offerings, using the money to fund their personal expenses.
In August 2013, McGinn was sentenced to 15 years in prison and ordered to pay $100,000 in fines. David Smith was sentenced to 10 years in prison and ordered to pay $50,000 in fines.
In the civil action, the district court ordered David Smith and McGinn to pay more than $99.1 million in disgorgement and prejudgment interest and that the funds should first come out of the stock account.
Lynn Smith appealed, saying that, at most, only half of the stock account's funds should be disgorged. The appeals court disagreed, saying there was ample evidence to show that David Smith was a joint or equitable owner of the account. The stock account received assets from both Lynn and David Smith, David Smith traded in the account without Lynn's consent, and he benefited from the stock account's funds, the court said.
The Second Circuit also rejected David Smith's argument that the disgorgement amount should be limited by the amount of restitution in the criminal case. “Disgorgement and restitution are separate remedies with separate goals, and need not be treated the same,” the court said.
To contact the reporter on this story: Cameron Finch in Washington at firstname.lastname@example.org.
To contact the editor responsible for this story: Phyllis Diamond at email@example.com.
To view the court's summary order, visit: http://www.bloomberglaw.com/public/document/Securities_and_Exchange_Commis_v_McGinn_Smith__Company_Incor_Dock/1.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to firstname.lastname@example.org.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to email@example.com.
Put me on standing order
Notify me when new releases are available (no standing order will be created)