A 73-year old New Jersey man was sentenced to serve the next seven years in federal prison for masterminding a $9 million Ponzi scheme purporting to be an investment fund that made loans to nursing homes. Maxwell B. Smith was sentenced by United States District Judge Mary L. Cooper, who also ordered him to serve three years of supervised release after completing his sentence. Smith had pled guilty nearly four years ago to five counts of mail fraud, which carried a maximum sentence of twenty years per count, as well as a $250,000 fine. Smith was also charged by state authorities, and also pled guilty in 2009 to one count of first-degree money laundering.
According to authorities, Smith was employed as a financial advisor at various financial firms in New Jersey where he provided investment advice to individual clients. In addition to providing investment advice, Smith also created Health Care Financial Partners ("HCFP"), which held itself out as an investment fund with hundreds of millions of dollars in assets. In an investment prospectus provided to investors, HCFP advertised guaranteed annual returns ranging from 7.5% to 9% supposedly generated through lucrative loans to healthcare facilities such as nursing homes. Investors were offered the opportunity to purchase bond offerings in amounts ranging from $25,000 to $300,000, and Smith touted the ability to treat any gains as tax-free. In total, Smith raised over $9 million from investors.
However, rather than using these funds for a legitimate purpose, Smith instead misappropriated millions of dollars to live a life of luxury that included dining, gambling, entertainment, overseas travel, and renting a villa in France. Smith paid out approximately $2 million in purported interest payments that were, in reality, simply principal belonging to other investors.
Ironically, Smith's scheme is said to have collapsed after the daughter of an elderly investor couple thought that the venture seemed very similar to Bernard Madoff's Ponzi scheme. This led to a civil lawsuit, which later led to criminal charges. While Smith's home was sold to benefit defrauded investors, this led to a shortfall of nearly $9 million.