Barred Broker Admits Orchestrating $100M Ponzi Scheme

On June 2, 2020, the DOJ indicted Smith in the same court. According to documents filed in this case and statements made in court, from February 2016 through August 2019, she orchestrated a scheme in which she made misrepresentations to investors and promised she would invest their funds in particular trading strategies that Broad Reach Capital was allegedly optimally situated to execute.

Smith distributed written materials about Broad Reach Capital to investors and prospective investors that included purported historical performance information, including claimed annual returns of over 33% in 2017 and positive monthly returns in 2018, DOJ alleged.

In reality, the total cash and securities in the Broad Reach Capital bank and brokerage accounts decreased from about December 2016 through June 2019, according to DOJ.

To induce investors to continue investing, Smith provided them with monthly account statements that falsely showed their investments were safe and earning significant returns, according to DOJ.

Over the course of the scheme, Smith collected more than $100 million in cash into Broad Reach Capital from about 40 investors, according to DOJ. At its peak, however, the value of cash and securities in the Broad Reach Capital bank and brokerage accounts did not exceed about $32 million.

Instead of investing the money as she promised, Smith transferred tens of millions of dollars out of Broad Reach Capital to entities she controlled for purposes inconsistent with the trading strategies, including more than about $10 million for mineral mining operations and about $2 million for her American Express credit card bills. In Ponzi-like fashion, when investors requested redemption of their investments, Smith diverted other investors’ funds to pay the requested redemption amounts, according to DOJ.

(Pictured: SEC headquarters in Washington; Photographer: Andrew Harrer/Bloomberg)