This month brings a new development in the court case against Timothy McGinn and David L. Smith, two New York security alarm industry investors the SEC has charged with defrauding investors of more than $80 million in a Ponzi scheme. On Feb. 1, a judge ruled that a vacation home in Vero Beach, Fla. that Smith and his wife bought 10 years ago be sold to help benefit investors.
It turns out the monthly mortgage of $6,188 on the home, worth an estimated $1.7 million to $1.9 million, hasn’t been paid since April of last year, when the SEC filed charges against McGinn and Smith and their assets were frozen, according to the judge’s order. The two were principals of McGinn, Smith & Co., an Albany-based investment firm that conducted investment dealings in the alarm industry. The SEC contends that from 2003 to 2009, the pair diverted funds into financially troubled entities and also into their own pockets, and to pay for exotic dancers on McGinn’s You Only Live Once cruise ship business.
Various other expenses for the Smith home at Orchid Point Way have gone unpaid and upkeep hasn’t taken place, according to the ruling by Magistrate Judge David Homer in U.S. District Court in the Northern District of New York.
In his order, the judge said those included landscaping at $475/month; pest control at $100/month; pool cleaning at $86/month; utilities at $530/month; insurance at $796/month; taxes of $1,875/month; monthly dues of $1,375, and various additional assessments totaling $1,060. Including the mortgage payment, the monthly costs for the house exceed $13,000, the judge said.
The judge wrote he was concerned that the value of the property could diminish with the place not being kept up. The judge said the mortgage holder also might foreclose on it because the mortgage isn’t being paid. He ordered the sale of the property “to halt the diminishment of its value and to realize the greatest possible return.”
Although Smith and his wife, Lynn, bought the house together in 2001 as a second vacation home, the property in 2009 was transferred into the name of Lynn Smith alone, the judge noted. Lynn Smith plans to seek a stay on the sale while she appeals the judge’s decision, according to court records.
Another place that might be a source of assets for investors is a security company that McGinn, Smith & Co. ran called Alarm Traders, according to a recent blog item in the Albany Times Union newspaper.
That paper reported that Alarm Traders, a buyer and seller of alarm monitoring accounts to security companies, remains operating and owns thousands of contracts. The court-appointed receiver overseeing McGinn's and Smith's assets said it was possible that company could be sold to help pay back investors, according to the paper.
In another recent ruling in the case, Judge Homer found McGinn, who served as CEO of IASG from 2003 to 2006, in contempt of court for his involvement in a new investment venture started this past summer. The judge said the new venture, Security Alarm Credit, appeared "remarkably similar" to the prior offerings that got McGinn in trouble with the SEC.