The Securities and Exchange Commission has charged 10 former brokers at an Albany, NY-based firm, whom the US authority alleges were at the center of a $125 million investment scheme for which the co-owners have already received jail
sentences.

The SEC alleges that 10 brokers, who worked for McGinn Smith & Co, recommended unregistered investment products in a scheme that made material misrepresentations and omissions to their customers. 

In addition, the SEC alleges that the registered representatives ignored red flags that should have led them to conduct more due diligence into the securities they were recommending to their customers.

The scheme victimized approximately 750
investors and led to $80 million in investor losses, according to the
SEC.

The agency filed an emergency action in 2010 to halt the scheme at McGinn
Smith & Co and freeze the assets of the firm and its owners, Timothy McGinn
and David Smith, who were later charged by the US Attorney’s Office and found
guilty.

Andrew Guzzetti, managing director of the from
2004 to 2009, is accused of failing to properly supervise the brokers and of
failing to take any action to investigate the offerings, despite the knowledge
of red flags.

The SEC further alleges that nine of the brokers
charged continued to sell McGinn Smith notes even after being told that
customers placed in some of the firm’s offerings could only be redeemed if a replacement
customer was found, which was contrary to the offering documents.  

“As securities professionals, these brokers
had an important duty to determine whether the securities they recommended to
customers were suitable, especially when red flags were apparent. These
registered representatives performed inadequate due diligence and failed to
fulfill their duties,” said Andrew Calamari, director of the SEC’s New York regional office.