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Lawyer: McGinn, Smith & Co. no Enron

Unsealed memo argues for more lenient sentence than 21 to 27 years

Thursday, August 1, 2013
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Former Albany brokers Timothy McGinn, right, and David Smith exit the federal courthouse in Albany in this Gazette file photo from October 2012.
Former Albany brokers Timothy McGinn, right, and David Smith exit the federal courthouse in Albany in this Gazette file photo from October 2012.

— David Smith is no Kenneth Lay and his failed Albany brokerage firm can hardly be compared to Enron, his lawyer argued in a sentencing memorandum unsealed in U.S. District Court on Thursday.

Defense attorney William Dreyer highlighted the differences between McGinn, Smith & Co. and Enron in arguing for more lenient sentencing guidelines than one that calls for his client to serve between 21 and 27 years behind bars for his conviction on fraud, conspiracy and tax evasion charges. He said the prison terms given to Lay and Jeffrey Skilling — another former Enron CEO — “pale in comparison” to the guidelines set in Smith’s pre-sentencing investigation produced by U.S. Probation and Pretrial Services.

Enron was an energy, commodities and services giant based in Houston. In 2001, the Fortune 500 company was embroiled in a massive fraud and corruption scandal that led to its bankruptcy and a rethinking of corporate accounting practices.

“In stark contrast to Mr. Smith’s conviction and his position as owner and president of the Albany, New York-based McGinn, Smith & Co., Inc., the convictions related to the Enron scandal should provide the court with a more realistic perspective with respect to Mr. Smith’s convictions,” Dreyer stated in the 25-page memorandum originally submitted to the court under seal last week.

Likewise, defense attorney E. Stewart Jones argued the “excessive nature” of the proposed sentence range becomes clearly evident when Timothy McGinn’s conviction is compared with some of the other offenses carrying lengthy terms behind bars. He said the guideline suggested in the pre-sentencing investigation would put his client’s crimes on a par with counterfeiting more than $400 million in U.S. currency or the unlimited distribution of unlawful drugs.

“It would be preposterous to compare the conduct here with crimes such as murder, sexual predation, providing nuclear and biological weapons of mass destruction, distributing unlimited amounts of illegal drugs and/or guns or other economic crimes where the financial harm is in excess of $400 million,” he wrote.

Both attorneys recommended their clients receive “a single digit year” sentence at maximum. They also both disputed federal probation’s methodology in producing the reports for McGinn and Smith.

In addition, Jones asked that McGinn be allowed to “self-surrender” after sentence is imposed in U.S. District Court in Utica on Wednesday. If permitted, the convicted partner would be allowed to report to a federal prison himself, rather than being held at a state prison until a transfer is available.

“To remand him following the imposition of sentence inflicts on him state prison time in a state facility, essentially warehousing him in that state facility until he is transferred to a federal facility,” Jones stated. “A federal sentence of imprisonment should be served only in a federal facility.”

In February, McGinn was found guilty of conspiracy to commit mail fraud, conspiracy to commit mail and wire fraud, wire fraud, securities fraud and filing a false tax return — in total, 27 of 29 counts against him. Smith was facing the same charges but was convicted of only 15 counts.

During the trial, federal prosecutors outlined how the business partners ordered company accountants to create backdated documents and bogus promissory notes as examiners with the Financial Industry Regulatory Authority began to probe their dealings. The documents, prosecutors said, were a desperate attempt by McGinn and Smith to legitimize a business that paid them handsomely with untaxed fees they took from the dozens of entities they used to attract 841 investors who ultimately lost $30.2 million when the scheme collapsed.

The defense team representing McGinn and Smith maintained the losses resulted from the nation’s economic collapse and that the partners were in the process of recouping investor money when the government clamped down on their business.

The prosecution’s memorandum provides a sentencing guideline that could land the partners up to life in prison, if used by Judge David Hurd. Assistant U.S. District Attorney Elizabeth Coombe asked for a “very substantial” prison term, though she didn’t request a specific term of incarceration.

Jones and Dreyer asked Hurd to keep the memorandums under seal until after next week’s sentencing. But the seal was contested by a reporter for the Albany Times Union, who argued “First Amendment and common law rights of access should prevail.”

Coombe agreed, citing a lawsuit filed by the New York Civil Liberties Union in the 2006 terrorism case against Albany imam Yassin Muhiddin Aref in 2006. In the lawsuit, the NYCLU compelled the government to disclose information pertaining the National Security Agency’s domestic wiretapping program, upholding the public’s right to access so-called secret documents used in criminal prosecutions.

 
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