Yet Another Senior Citizen Guilty In Ponzi Scheme That Targeted Fellow Seniors; Crime Was ‘Ruthlessly’ Executed, NJ Attorney General Anne Milgram Says

A New Jersey financial adviser who created a sham company and operated it for 17 years has pleaded guilty to five felony counts of mail fraud, federal prosecutors said.

Separately, state prosecutors announced a guilty plea to a felony charge of money-laundering.

Maxwell B. Smith, 69, of Fairhaven, operated a Ponzi scheme that consumed more than $9 million, said U.S. Attorney Paul J. Fishman of the District of New Jersey.

Smith faces a maximum sentence in the federal case of 100 years in prison and a maximum fine of $1.25 million. He will be sentenced Feb. 26 and remains free on bail of $1 million.

Senior citizens were among the victims of a Ponzi scheme operated by a senior citizen, prosecutors said. New Jersey Attorney General Anne Milgram, whose office brought the companion money-laundering prosecution, described the crime as ruthless.

“This defendant ruthlessly preyed on elderly investors, targeting longtime clients who trusted him to look out for their interests,” Milgram said. “Instead, Smith deceived them and stole their money, in some instances depriving retired investors of their life savings.”

Part of the deception was to operate the scheme out of a Mail Boxes Etc. “mail drop leased by Smith,” prosecutors said.

Prosecutors said Smith worked for financial-services companies in Millburn and Tinton Falls, and admitted he created a sham entity known as Health Care Financial Partners (HCFP) in 1992. HCFP purported to be an investment fund with more than $300 million in assets under management, consisting of loans to healthcare facilities such as nursing homes.

“Using his relationships with his investor clients, Smith admitted that he sold debt securities in HCFP through sham bond offerings ranging in prices from $25,000 to $300,000 per investment,” prosecutors said. “Smith induced individual investors by creating a phony investment prospectus falsely stating that the total value of HCFP’s holdings exceeded $300 million. To further induce individuals to invest in HCFP, Smith falsely claimed that their money would earn yearly dividend interest of between 7.5 and 9 percent, and that the returns on their investments would be tax-free, similar to municipal bonds.”

Smith duped investors by lulling them into “thinking their investments were legitimate and earning returns” by using their money “to purchase bank checks, which he then sent
to investors as purported earnings on their investments,” prosecutors said.

But Smith told U.S. District Judge Mary L. Cooper that, instead of investing the funds as promised, he diverted the investments to his own bank accounts where he used the investors’ money for his personal expenses.”

Smith spent client funds on dining, entertainment, gambling and international travel, “defrauding HCFP investors out of more than $9 million, prosecutors said.

He also was charged under state law with money-laundering by Milgram. Smith pleaded guilty in the state case last week, and state prosecutors recommended a sentence of 15 years. The state sentencing is scheduled for March 5 in Morris County. Superior Court Judge Thomas V. Manahan will preside.

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