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Regulation and Compliance > Litigation

Barred Broker Gets Over 9 Years in Prison for $100M Ponzi Scheme

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What You Need to Know

  • A federal judge in New Jersey sentenced an ex-broker who pleaded guilty to securities fraud to 109 months in prison.
  • The barred broker was also sentenced to three years of supervised release and was ordered to pay $47.2 million in restitution.
  • From February 2016 through August 2019, the ex-broker led a scheme in which 40 investors lost more than $100 million.

The former broker and investment fund manager who pleaded guilty in September to orchestrating a $100 million Ponzi-like securities fraud scheme has been sentenced to over nine years in prison, according to Philip R. Sellinger, U.S. attorney for the District of New Jersey.

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

In the U.S. District Court in Newark on Wednesday, Arleo sentenced Smith to 109 months in prison, Sellinger said in a news release.

In addition, the judge sentenced her to three years of supervised release and ordered her to pay $47.2 million in restitution, Sellinger said.

Kevin F. Carlucci, a lawyer from the Office of the Federal Public Defender who represented Smith, according to court documents, did not immediately respond to a request for comment on Thursday.

Pooled Fund Sank Investors’ Money

On June 2, 2020, the Department of Justice indicted Smith in U.S. District Court for the District of New Jersey.

According to documents filed in the case by the Justice Department and statements made in court, 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.

From February 2016 through August 2019, Smith led 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 misrepresented the performance and success of Broad Reach Capital to investors and prospective investors and touted the company as a trade-focused investment fund that was highly liquid and utilized a robust risk management program, according to court documents.

To ease investors’ concerns and persuade them to continue investing, Smith provided monthly account statements that falsely showed their investments were safe and earning significant returns. Smith also falsely represented that she was personally invested in Broad Reach Capital and provided a fictitious account statement to at least one investor, according to court documents.

Over the course of the scheme, Smith collected more than $100 million in cash from about 40 investors that was allegedly poured into Broad Reach Capital. But at its peak, the value of cash and securities in the Broad Reach Capital bank and brokerage accounts didn’t exceed about $32 million, according to court documents.

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 American Express credit card bills.

When investors asked Smith to redeem their investments, she diverted other investors’ funds to pay the requested redemption amounts, according to court documents.

The Securities and Exchange Commission filed a civil complaint against Smith in the same federal court on Aug. 27, 2019, based on the same conduct.

Smith 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.

(Image: Shutterstock)


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