$9.8M Ponzi Scheme Lands Fair Haven Man 22-Year Jail Sentence

By Elaine Van Develde

A Fair Haven financial advisor was sentenced on Monday to 15 years in prison, with five years of parole ineligibility, for his role in a Ponzi scheme that defrauded investment clients of $9.8 million, Acting NJ Attorney General John J. Hoffman announced.
 
Maxwell B. Smith III, 73, as part of a "global resolution" sentencing by the U.S. Attorney's Office of the state and federal charges against him, will serve a total of 22 years.

The 15-year state sentence for money laundering (Ponzi scheme) will be served consecutively with a federal seven-year sentence he was handed down on June 5 after pleading guilty to five counts of mail fraud in connection with his creation of a phony investment fund called Health Care Financial Partnership Municipal Loans, a release from the Office of the NJ Attorney General said.

As part of the "global resolution," Smith was also ordered to pay nearly $8 million of the $9.8 million he bilked in restitution to his victims. The $8 million represents the amount taken from investors less token amounts he returned as purported interest, according to the release.

“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 Hoffman in a released statement. “These elderly clients trusted Smith as their financial advisor, and he rewarded their trust by stealing their life savings.”

From 1992 to 2009, Smith falsely represented to investors that Health Care Financial was a lucrative investment fund with a false paperwork showing more than $300 million in assets. He admitted he told investors that he managed the "fund" through financing and refinancing loans to healthcare facilities, such as nursing homes, a previous Patch report on Smith's seven-year sentence said.

Smith also falsely claimed, according to the U.S. Attorney, that the investments were "safe," garnering investors yearly tax-free dividend interest of between 7.5 and 9 percent. To earn clients' trust, he also sent them worthless bank checks, according to the U.S. Attorney's records, as evidence of purported investment earnings.

He, according to records, instead used the money he got from investors to pay his own tab for lavish international vacations, dining, entertainment and gambling, according to the state Attorney General.

After a local investment firm Smith worked for from 2005 to 2009 reported suspicions of his fraudulent to securities regulators, an investigation was launched, the release said.

It revealed that Smith collected investments for the phony fund by instructing investors to make their checks payable to Merrill Lynch and forward them to Health Care Financial at a New York address which was a Mail Boxes Etc. drop, it added.

He allegedly laundered the funds via several bank accounts he controlled; and he wrote out  fake investment return checks to them drawn on accounts holding their own money to keep them believing the investment was making money, according to the release.  

Smith, the release added, sent the investors fake confirmation letters and prospectuses to create an impression that the fund was legitimate.