73-Year Old New Jersey Financial Advisor Sentenced to 15 Years For $9.8 Million Ponzi Scheme

A 73-year old New Jersey former financial advisor was sentenced to serve fifteen years in state prison for orchestrating a $9.8 million Ponzi scheme.  Maxwell Smith, of Fair Haven, New Jersey, received the sentence after previously pleading guilty to a state charge of money laundering.  He will serve the sentence concurrently with a seven-year sentence handed down by federal authorities after he pled guilty to federal mail fraud charges.  In addition to his prison terms, Smith is permanently barred from ever working again in the securities industry, and will also owe nearly $8 million in restitution to his victims.

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, the scheme's demise is attributed to suspicions raised by the daughter of an elderly investor couple that invested $7 million with Smith who 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.  

Thus far, victims have recovered more than $4 million - the majority of which is comprised of FINRA arbitration awards against brokerage firms that employed Smith.  Even with an additional $1.3 million of claims, it is believed investors will still suffer collective losses of at least $4 million.