Protecting Investors from Unpaid Securities Arbitration Awards

Michael Carroll, Executive Editor, Albany Government Law Review Member

Introduction


“McGinn, Smith invested nearly all of [Mr.] Steinkirchner’s life savings into a high-risk investment fund . . . ‘It virtually destroyed his retirement plan’ . . . ‘He had to go back to work.”[1]


McGinn, Smith, a once prominent investment firm in Albany, New York, has been accused by the Securities and Exchange Commission (“SEC”) of “running a $136 million [Ponzi] scheme that funneled cash from hundreds of investors into a sex-themed cruise line operation and other highly speculative businesses while funding a lavish lifestyle for [the] company[‘s] founders.”[2] According to the SEC, the alleged Ponzi scheme primarily concerned McGinn, Smith’s sale of private placement securities to over 900 different investors.[3] The SEC’s complaint alleges that the private placements carried “a high-degree of risk” due to the fact that these securities were unregulated and illiquid.[4] McGinn, Smith allegedly sold these products to investors by promising high rates of return (in some cases 13%) while reassuring the clients that the investments were safe.[5] The SEC’s complaint states that at least one investor claimed that he was “steered . . . away from investing in blue chip stocks like General Electric as too risky, and [was] told . . . that the Fund private placements were safer investments.”[6]

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