Admitted Ponzi-schemer Shawn Merriman was sentenced to 12 1/2 years in prison Tuesday for a $20 million fraud whose victims included his own mother.
According to the Denver Post, about 30 victims of Merriman's $20 million fraud packed a federal courtroom in Colorado's capital city for seven hours of testimony and arguments.
Merriman pleaded guilty in December to one count of mail fraud after turning himself in to authorities in March 2009. The paper reports he admitted to taking money from 67 investors and using it to fund a lavish lifestyle and to pay off other investors.
The maximum sentence for the mail-fraud charge was 20 years, but Merriman's cooperation with investigators led the government to seek a sentence of 12 1/2 years, the Post reports.
Merriman's attorney asked the court for a sentence of just under six years.
U.S. District Court Judge Marcia Krieger rejected a key government claim that Merriman was not only a fund manager but an investment adviser, and thus deserved more time behind bars.
However, Krieger gave Merriman a harsher prison term than federal guidelines required, citing his betrayal of family, friends and church members, and the risk that he might reoffend.
"This gets into the confusion names and titles and the level of liability associated with each," says Kathleen McBride, editor of Wealth Manager Web and a member of the Committee for the Fiduciary Standard, a group that advocates for the Investment Advisers Act of 1940 as the industry fiduciary standard. "If nothing else, if they call themselves an investment advisor, they have to have a third-party auditor and third-party custodian. They'll have a fiduciary duty to clients that they will have to constantly prove. But if they act accordingly under the investment advisor label, they'll be better protected against legal action."
McBride notes the reason for most suits currently brought against brokers is for breach of fiduciary duty. But the SEC, stung by criticism in the wake of the Madoff scandal, is also stepping up investigations and enforcement actions.
"Madoff was his own custodian and had his own two-man auditing team that was supposedly independent," McBride adds. "So you'll see the SEC take a much harder look at those claiming to call themselves investment advisors."
Under the sentence, Merriman will also face three years of supervision upon his release.