Broker Charged With Defrauding Investors

The Securities and Exchange Commission charged a registered representative in Pennsylvania with operating a long-running offering and investment advisory fraud.

The SEC’s complaint, filed in federal court in Philadelphia, alleges that Paul W. Smith raised approximately $2.35 million from approximately 30 investors – many of whom were his brokerage customers – by representing that he would invest their money in publicly traded securities through The Haverford Group, an outside partnership that Smith formed and did not disclose to his broker-dealer employers.  However, Smith allegedly made very few securities investments and instead largely used investors’ money to repay other investors and for his own personal use.

“As alleged in our complaint, Smith told investors that Haverford provided steady and dependable returns,” said Kelly L. Gibson, Associate Director of the SEC’s Philadelphia Regional Office.  “Those returns were a fiction.  Smith was misappropriating investors’ money and lying to cover his tracks.  This matter highlights the need for retail investors – and retirees and elderly individuals in particular – to remain skeptical of investments that sound too good to be true.”

Subject to court approval, Smith has agreed to settle the SEC’s action against him by consenting to an injunction against violations of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, and Sections 206(1), 206(2), and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8.  Smith has agreed to pay disgorgement and prejudgment interest of $362,858.45, which would be deemed satisfied upon the entry of an order in a parallel criminal proceeding requiring Smith to pay a greater amount in restitution.  Smith has agreed to plead guilty in the parallel criminal action brought by the U.S. Attorney’s Office for the Eastern District of Pennsylvania.

The SEC’s investigation was conducted by Norman P. Ostrove and Scott A. Thompson in the Philadelphia office with assistance from Jennifer C. Barry, and supervised by Ms. Gibson.  The examination that led to the investigation was conducted by Eric A. Elefante, Edward T. Flaherty, Ian M. Budzilowicz, Colleen D. Sigle, and Brian Carroll.  The SEC appreciates the assistance of the U.S. Attorney’s Office for the Eastern District of Pennsylvania and the Federal Bureau of Investigation.