ALBANY, N.Y. — Financiers Timothy McGinn and David Smith, who had their business and personal assets frozen in April after the Securities and Exchange Commission (SEC) charged them with running a Ponzi scheme, have launched a new investment venture in the alarm industry, according to a newspaper report.
McGinn, the former CEO of Albany, N.Y.-based Integrated Alarm Services Group Inc. (IASG), and Smith operated McGinn, Smith & Co., a registered broker-dealer and investment firm that is now in receivership. The SEC’s civil lawsuit against McGinn and Smith accuses them of mismanaging $136 million in client assets that were placed in unregulated, high-risk investment funds, including a sex-themed cruise line.
McGinn and Smith recently formed a limited liability corporation, Security Alarm Credit, which lists their former administrative assistant, Carolyn M. Gracey, as chairwoman and CEO, according to the Times Union. The venture also lists Gracey’s residence in East Greenbush, N.Y., as its corporate headquarters.
McGinn and Smith, who have been business partners for more than 30 years, are listed as executive vice presidents for Security Alarm Credit. The new investment initiative has not been disclosed in the ongoing fraud case that the SEC filed against McGinn and Smith on April 20, according to the newspaper. The SEC’s complaint accuses the firm of mismanaging investor assets and of leaving a wake of victims, including some who claim to have lost their retirement savings.
The newspaper reported that two people familiar with the new investment venture said McGinn has solicited investments from people across the country in a proposed $425,000 loan to a Georgia-based alarm company, Anchor Alarm Center Inc., which is headquartered in Suwanee, Ga.
Michael Latty, the founder and president of Anchor Alarm Center, which has 14 full-time employees, told the newspaper he was not aware that McGinn and Smith were accused of fraud by the SEC, or that they are targets of a related federal grand jury investigation.
In their latest endeavor, McGinn and Smith are proposing to raise $543,000 from investors to loan $425,000 to Anchor Alarm Center at an annual interest rate of 19.62 percent, according to a confidential memorandum outlining the offering to potential investors. The Georgia company has 205 alarm dealers as customers, according to the offering memo obtained by the Times Union.
The money would be used by Anchor Alarm Center to “extinguish existing debt,” the offering states. It adds that risk factors to investors include “no independent counsel to investors,” no market for the resale of the notes, no assurance the company will make its debt service payments, and a lack of audited financial statements from Anchor Alarm.
The offering says that if $530,000 is raised then Security Alarm Credit will lend $425,000 to the Georgia alarm company. “The remaining $105,000 will be used by SACC for corporate purposes.”
In an interview with the newspaper, McGinn said he and Smith have a right to earn a living despite the federal government’s characterization of their dealings. The offering memorandum by Security Alarm Credit does disclose that both McGinn and Smith, and their former firm, are defendants in the civil suit filed by the SEC.