Paul Wescoe Smith, of Wayne, Pennsylvania, a stockbroker formerly registered with Bolton Global Capital and investment advisor for The Haverford Group, has been charged by Securities and Exchange Commission (SEC) in a Complaint alleging that engaged in investment advisory fraud and executed a fraudulent securities offering spanning a quarter century. Securities and Exchange Commission v. Paul Wescoe Smith, Civil Action No. 17-5480 (Dec. 7, 2017).
According to the Complaint, between 1991 and 2016, about $2,350,000.00 had been accumulated by Smith from approximately thirty investors through this representations that their money would be invested by Smith through The Haverford Group. Apparently, Haverford was a partnership designed as pooled investment vehicle to effect investors’ public securities transactions.
The Complaint alleged that within the Subscription Agreement that Smith created for Haverford, he represented that Haverford’s objective was to generate capital appreciation and current income while also offering preservation of capital and liquidity. Apparently, investors were told that Haverford would be able to generate profits through procuring issuers’ securities at discount prices and then effecting securities sales at a profit on the open market.
The SEC alleged that investors provided Smith with discretion to effect trades on their behalf through Haverford, allowing Smith to effect trades without investors’ input or participation.
Apparently, decisions for Haverford were all made by Smith regarding the utilization of funds provided by investors, and Smith undertook Haverford’s operations with no participation from them.
Investors were reportedly persuaded that Haverford would be able to produce dependable returns. The Complaint stated that retired and elderly investors who were vulnerable and trusted Smith had been convinced by him to make the investments in Haverford even though Smith was cognizant that Haverford was a scam.
The Complaint stated that Smith underwent several measures to conceal his fraudulent scheme, including his creation of bogus account statements that referenced gains and balances in the customer’s accounts. Particularly, statements allegedly transmitted to investors would show withdrawals and deposits that investors initiated, as well as account balances and monthly credits made to their accounts that were based upon supposed investment returns. Smith purportedly even sent investors bogus tax documents that relayed the non-taxable and taxable portion of the supposed investment returns.
Allegedly, Smith promised customers that their funds would be appropriately invested; however, he utilized their funds for his personal use or to provide repayment to other investors. In one case, an investor sought a $409,000.00 withdrawal in 2011. Yet, the Complaint stated that assets of Haverford totaled approximately $53,000.00 in the brokerage account and approximately $100.00 in a checking account. Apparently, funds that Smith used to pay that investor came from the liquidation of the Haverford brokerage account coupled with $390,000.00 from new and unsuspecting investors. The Complaint stated that Smith raked in $20,000.00 for his own personal account in connection with that investor payment.
SEC alleged that $247,000.00 in total checks were written by Smith to himself from the checking account in Haverford’s name. Apparently, Smith’s employers throughout this period were unaware of Haverford’s accounts and activities, as he took money from investors to repay others in an effort to thwart detection.
His fraudulent scheme was reportedly made known to authorities by an investor in October of 2016 after the investor was not repaid by him. Allegedly, in July of 2016, a seventy-nine-year-old nurse sought a return of her principal and gains, which she believed to be $126,460.00. Yet, the nurse’s funds were supposedly never invested. Apparently, the nurse’s son was informed by October of 2016 that there were no funds that Smith had to provide to the nurse. The Complaint stated that police were eventually contacted by the nurse, who reported Smith’s activities to the Securities and Exchange Commission.
Apparently, at the time that the scheme had collapsed, eighteen investors had still maintained funds with Haverford. The Complaint stated that $1,210,000.00 in total principal payments were made by customers. Those investors reportedly received just $327,000.00 back, sustaining an $886,000.00 loss. Consequently, SEC alleged that Smith’s conduct was violative of Securities Exchange Act of 1934 Section 10(b), SEC Rule 10b-5, Securities Act of 1933 Section 17(a), as well as Investment Advisers Act Section 206(1), 206(2), 206(4) and Rule 206(4)-8.
Financial Industry Regulatory Authority (FINRA) Public Disclosure reveals that Smith has been identified in eleven customer initiated investment related disputes containing allegations of suitability, misrepresentation and fraud. Prior to the SEC Complaint, he was fired from Bolton Global Capital on February 2, 2017, based upon allegations of selling away.
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