New Jersey Division of Consumer Affairs Announces Fraud Charges in Lawsuit Filed by Bureau of Securities, Alleging $8.5 Million Fraudulent Scheme Targeting Elderly Investors
NEWARK ? The Office of the Attorney General through the New Jersey Bureau of Securities, within the Division of Consumer Affairs, has filed new charges in a lawsuit pending in State Superior Court, alleging that several individuals defrauded dozens of investors after raising approximately $8.5 million and by operating a Ponzi scheme, and using some of the funds for their own personal enrichment.
According to the First Amended Verified Complaint, the fraudulent scheme involved the sale of allegedly secure three-year notes, promising 12 percent annual rates of return, to 73 investors, many of whom were elderly and retired The First Amended Verified Complaint alleges that, in fact, none of the defendants or the securities were registered with the Bureau, as required by the state's Uniform Securities Law, and the investor funds that were raised were misused, in part, to pay other existing investors.
Additionally, approximately $5 million in investor funds was allegedly "improperly transferred," in whole or in part, to certain defendants, members of their families, and a law firm controlled by one of the defendants.
"We allege that these investors sought secure investments but instead, fell victims to a scam by individuals looking to unjustly enrich themselves," Attorney General Paula T. Dow said. "We're working to obtain restitution for the defrauded investors, plus assessment of civil penalties against the defendants."
In March, the Bureau filed suit against Liberty State Financial Holdings Corporation (LSFHC) and a wholly-owned subsidiary, Liberty State Benefits of Pennsylvania, Inc. (LSBPA). LSFHC is based in Cherry Hill, N.J. The First Amended Verified Complaint, filed in Essex County, adds the following individuals as defendants:
- Michael William Kwasnik, Esq.
New Jersey and Pennsylvania licensed attorney
Former Corporate Counsel to LSFHC and LSBPA
Former Chairman of the Board of Directors of LSFHC (under its prior name)
Resident of Philadelphia, age 42
- William Kwasnik
Father of Michael W. Kwasnik
CEO of LSFHC during time of the alleged conduct
President of LSBPA during time of the alleged conduct
Resident of Marlton, N.J., age 70
- Joseph Anthony Schifano
Former registered agent of a broker-dealer
Resident of Brick, N.J., age 45
- Daniel Francis McCorry
Former registered agent of a broker-dealer
Resident of Ventnor, N.J., age 55
- William P. Leonard
Secretary and Treasurer, Capital Conservation Associates, Inc.
Former Chairman of the Board of Directors of LSFHC (under its prior name)
Former registered agent of a broker-dealer
Resident of Cherry Hill, age 83
The Bureau alleges that in targeting their victims, the defendants sought to exploit the trust established through previous business and/or legal relationships. According to the First Amended Verified Complaint, Michael W. Kwasnik, an attorney, sold some notes to individuals he met through providing them with legal services. He also served as a trustee controlling the assets of certain trusts and is believed to have used his power as trustee to purchase notes on behalf of these trusts.
Investors were allegedly told that funds raised by sale of the three-year notes ioffered by LSBPA would be used to purchase life insurance policies and beneficial interests in Irrevocable Life Insurance Trusts. In reality, the First Amended Verified Complaint alleges, approximately $5 million in investor funds were transferred to Michael W. Kwasnik's law firm, and to Michael W. Kwasnik, William Kwasnik, and various relatives for their personal enrichment, while other funds were used to pay existing investors in classic Ponzi fashion, among other things.
"We allege that the defendants betrayed the trust placed in them by their clients, and that greed motivated their actions to defraud these elderly investors of the nest eggs they had built up over their lifetimes," said Thomas R. Calcagni, Director of the State Division of Consumer Affairs. "We're taking action to hold the defendants accountable and to help the victims of this alleged fraud."
At the Bureau's request, and with the consent of LSFHC and LSBPA, the Court appointed a fiscal agent to oversee LSFHC and LSBPA this March. In July, the two defendant companies filed for Chapter 11 bankruptcy, and the Court appointed a bankruptcy trustee in September.
Defendants Schifano and McCorry were both disciplined by the Bureau in 2005, under an enforcement action unrelated to the present case.
"I cannot overstate the importance of performing due diligence before investing any money. Investors should contact us to check whether the person offering the security, and the security itself, are registered," said Abbe R. Tiger, Chief of the N.J. Bureau of Securities.
Deputy Attorneys General Victoria A. Manning and Stacy-Ann T. Davy of the Securities Fraud Prosecution Section are representing the Bureau in this case. The investigation was conducted by Bureau Investigators Michael LaChapelle and Leon Martin.
The Bureau of Securities can be contacted toll-free within New Jersey at 1-866-I-INVEST (1-866-446-8378) or from outside New Jersey at 973-504-3600. The Bureau's web site is located at www.NJSecurities.gov .
The Attorney General's Office also announced action today against defendant Michael W. Kwasnik in a separate, criminal indictment filed by the Division of Criminal Justice. Michael Kwasnik was indicted and arrested on charges he stole more than $1 million from a client. A copy of the press release about the indictment and arrest can be found at www.njpublicsafety.com.
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