A barred advisor was sentenced to more than five years in prison for a $2.4 million fraud scheme that bilked upwards of 30 mostly elderly investors over a 25-year span.
Paul Wescoe Smith pleaded guilty to two counts of mail and securities fraud and was ordered to pay $886,214 in restitution in a federal court in Pennsylvania. The Ponzi-like scheme used investor funds to pay other investors’ debts and to cover Smith’s personal expenses.
Through his investment firm, The Haverford Group, Smith mailed investors fraudulent quarterly account statements, showing certain monthly “credits,” and yearly income statements for tax purposes that claimed to break down the investment profits into taxable and non-taxable gains.
To conceal the fraud, Smith kept Haverford's activities and accounts hidden from his employers and used money from investors to repay others to avoid suspicion.
In fact, Smith made no investments at all after liquidating the brokerage account in 2011, despite continuing to solicit new investors for the Haverford Group and to accept new contributions.
For example, in 2011 an investor wanted to withdraw his $409,000, but at the time, Haverford’s assets consisted of $100 in its checking account. Over approximately six weeks, Smith raised $390,000 of new money from unwitting investors and liquidated the account paying back the investor and cutting himself a $20,000 check.
“There were a lot of reasons why this occurred,” says Thomas Donato, a criminal defense attorney representing Smith, adding that his client was diagnosed as persistently depressed and severely addicted to alcohol.
The scheme unraveled in 2016 when Smith sent a quarterly account statement from the Haverford Group to an elderly client, a 79-year-old retired nurse, which falsely represented a balance of $126,460. Once the woman’s son demanded the funds, Smith admitted there was “no money” available to pay her and the son filed a complaint with local police, who contacted the SEC.
“Once the behavior came to light, Smith did everything he could to cooperate with the investigation including FINRA, the SEC and the government, as well as the civil litigation,” Donato says.
Smith was discharged from Bolton Global Capital in 2017 after the firm found out he engaged in private securities transactions without notifying the firm, according to FINRA BrokerCheck records. The 34-year veteran began his career with Prudential in 1985, per BrokerCheck.
“We were hoping there would be more recognition of the post-offence behavior in the sentencing and recognition of the mental health and substance issues that gave rise to this behavior,” Donato says. “Anytime someone goes to jail for five years, it’s not really a victory.”
Toward the end of the scheme, assets with Haverford Group had been decimated. For example, Smith sent a quarterly account statement from the Haverford Group to another elderly client, which falsely represented that the balance was $127,359. Total account balances at the firm at the time amounted to $48.90, and its investments were worth approximately $6,000.
Bolton Global did not return requests for comment.