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Regulation and Compliance > Litigation

Barred Broker Admits Orchestrating $100M Ponzi Scheme

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What You Need to Know

  • A former broker and investment fund manager faces up to 20 years in prison for running a Ponzi scheme.
  • She also faces a $5 million fine after pleading guilty to securities fraud.
  • She was barred by FINRA in July 2019 after she allegedly refused to provide documents and information it requested.

A former broker and investment fund manager admitted on Thursday to orchestrating a $100 million Ponzi-like securities fraud scheme, according to acting U.S. Attorney Rachael A. Honig.

Brenda Smith, 61, of Philadelphia, pleaded guilty by videoconference before U.S. District Judge Madeline Cox Arleo to count seven of an indictment charging her with securities fraud.

The securities fraud count she pleaded guilty to carries a maximum penalty of 20 years in prison and a $5 million fine, according to Honig. Sentencing is scheduled for Jan. 20.

Smith managed and controlled Broad Reach Capital, a pooled investment fund/hedge fund that was established in February 2016 and was open to accredited investors with a minimum investment of $1 million, according to Honig.

She first became registered as a broker when she joined Kildare Capital in 2006, according to her report on the Financial Industry Regulatory Authority’s BrokerCheck website.

Smith voluntarily resigned from CV Brokerage in June 2019, according to a disclosure on her report.

She was barred by FINRA in July 2019 after she allegedly refused to provide documents and information requested by the regulator while it was investigating potential misstatements she made about the financial performance of an investment fund in the course of private securities transactions she participated in.

More Details

On Aug. 27, 2019, the Securities and Exchange Commission filed a complaint against Smith in U.S. District Court for the District of New Jersey, alleging she, Broad Reach Capital, Broad Reach Partners and Bristol Advisors ran an investment advisory fraud scheme in which the defendants solicited over $100 million from investors to supposedly invest in securities trading strategies.

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)


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