Ex-Stockbroker Gets Decade In Prison For Fake CD Scheme
By Alex Wolf of law360.com
Law360, New York (June 24, 2016, 8:34 PM ET) — A former stockbroker who pled guilty to fraud charges for bilking investors through fake certificates of deposit was ordered by a Pennsylvania federal court on Thursday to pay over $3 million in restitution and serve a 10-and-a-half-year sentence, according to the U.S. Securities and Exchange Commission.
Malcolm Segal, who in February pled guilty to running a fraudulent scheme that stole more than $3.2 million from clients by selling fake CDs, faced up to 20 years in prison for committing mail and wire fraud.
Segal, a resident of both Langhorne, Pennsylvania, and Boynton Beach, Florida, was hit with a grand jury indictment last June and with a parallel civil suit by the SEC in July, which was resolved earlier this week when the district court issued a final judgment enjoining Segal from future violations of the Securities Act and the Securities Exchange Act, the SEC said.
Segal’s attorney, Lawrence J. Bozzelli, told Law360 in an email Friday that he and his client had hoped for a lesser sentence.
“It was clear that for the better part of 60 years, Mr. Segal lived an honorable, law abiding life and was a great provider to his family,” he said. “To be 70 years old and receive a 10 1/2 year sentence is, effectively, a ‘life’ sentence.”
Prosecutors alleged that Segal served as president and treasurer of National CD Sales, a CD broker, while he was a sales representative at New Jersey-based broker-dealer Cumberland Brokerage Corp. After Cumberland dropped its CD business in 2008, National absorbed all of the clients, according to the government.
According to a superseding indictment, after inheriting the CD clients, Segal redeemed their certificates without their knowledge and stole the proceeds, providing them with fake information to hide the scheme. Prosecutors said that Segal stole a total of $174,056.08 from those clients.
The indictment also detailed a parallel CD scheme, begun in March 2011 after Segal became a financial adviser with Aegis Capital Corp. According to the government, Segal solicited six investors and convinced them to purchase CDs at a minimum of $100,000, claiming the certificates offered 12 percent annual interest.
In fact, prosecutors said, Segal didn’t purchase any CDs, and instead pocketed the cash for personal expenses and to pay back other investors. Prosecutors said Segal stole $3.1 million from those victims.
The SEC’s civil complaint portrayed a much broader fraudulent scheme than the criminal indictment, alleging Segal raised about $15.5 million from at least 150 investors. The agency said that Segal had made unauthorized withdrawals from brokerage customer accounts to fund payments to other investors, and alleged that the scheme ultimately collapsed in July 2014 when an investor informed Segal’s employer about the withdrawals.
In April, Segal agreed to be barred from associating with brokers, dealers, investment advisers and other financial firms and from participating in penny stock offerings in administrative proceedings with the SEC.
Segal is represented in the civil suit and the criminal case by Lawrence J. Bozzelli of the Bozzelli Law Firm.
The SEC is represented in the civil suit by Michael J. Rinaldi. The government is represented in the criminal case by Joel D. Goldstein and Joseph F. Minni.
The civil suit is Securities and Exchange Commission v. Segal, case number 2:15-cv-03668, and the criminal case is USA v. Segal, case number 2:15-cr-00287, in the U.S. District Court for the Eastern District of Pennsylvania.