McGinn, Smith investors left in the lurch?

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09/21/2011

I’ve written here before about Timothy McGinn and David L. Smith, principals of McGinn, Smith & Co., an Albany, N.Y.-based investment firm that conducted investment dealings in the alarm industry.

The U.S. Securities and Exchange Commission filed charges against them last year, contending that from 2003 to 2009 the high-living pair ran a Ponzi scheme, diverting millions of dollars into financially troubled entities and also into their own pockets.

But we haven’t heard much about the people they allegedly swindled—until the Albany Times Union newspaper published a story this week detailing the plight of the approximately 900 victims, saying it’s doubtful they’ll ever get their money back.

Here’s more from the Sept. 20 story:

   

ALBANY -- Lesley Levy was a Wall Street adviser. Through her years of hard work, she said, she hoped to spend her retirement comfortably nestled in her San Diego home.

Now, faced with the loss of up to $2 million in investments she said she steered to an Albany brokerage, McGinn, Smith & Co., Levy, 61, fears she has lost everything. Levy said she's living off a credit card, shops at Dollar Tree and is unable to afford even routine medical visits. She has taken in boarders to try to cover her mortgage payments.

"You don't know what it's like to have strangers in your house," she said, recounting a tenant who would boil fish in her kitchen late at night. "It's horrible."

Levy is among an estimated 900 individuals and organizations that placed investments with McGinn, Smith & Co., which was accused of fraud 17 months ago in a complaint filed by the U.S. Securities and Exchange Commission.

For several decades the firm's founders, Timothy M. McGinn and David L. Smith, were part of a country-club elite, rubbing elbows with the area's wealthiest residents while playing golf in exclusive destinations like Ireland and Palm Beach, Fla. They cultivated clients at the highest levels of society and built their brokerage into a lucrative firm that was once so connected their payroll included former state Senate Majority Leader Joseph L. Bruno.

But according to the SEC's civil complaint, McGinn, Smith and its various entities orchestrated what eventually became a Ponzi-type scheme that left hundreds of people financially devastated. The "house of cards" the SEC has accused the brokerage of building began to collapse three years ago. Even then, the SEC said, the brokerage's leaders began trying to hide their assets while raiding funds and luring money from more alleged victims.

Now, more than a year after the SEC stepped in, and as a federal criminal investigation remains pending, it's unclear whether investors who lost money will ever be repaid.

The SEC estimates the alleged fraud unfolded over at least a six-year period and involved up to $136 million. The firm's largest investment account, called the Four Funds, has less than $500,000 in cash despite owing investors at least $84 million.