Life in prison for McGinn, Smith?

Security industry investors Timothy McGinn and David L. Smith are set to be sentenced next week and could spend the rest of their lives in prison after being convicted of fraud, conspiracy and tax evasion earlier this year.

That's the sentence prosecutors want a judge to impose on the pair—formerly partners at the Albany, N.Y.-based brokerage firm of McGinn, Smith & Co., which conducted dealings in the alarm industry—when they appear in court on Aug. 7, according to the Time Union, an Albany-based newspaper. Life in prison is warranted because the pair caused at least 250 victims to lose more than $30 million, prosecutors say.

However, McGinn, 64, and Smith, 68, are seeking leniency and having friends and relatives send letters testifying to their good characters, according to news reports.

Here's more from the recent Times Union article:

In a sentencing memorandum filed Wednesday, assistant U.S. Attorney Elizabeth C. Coombe said the maximum term of imprisonment is warranted by factors that include more than $30 million in losses to at least 250 victims. She said the defendants' argument that their misdeeds were caused by a collapsing financial market "misses the mark."

"After persuading investors to part with their money, defendants used it as if it were their own. Not only did they secretly skim large percentages of investor funds to line their own pockets, but they did their very best to make sure that the investments would keep coming in by using new investor money to pay old investors," Coombe wrote in a 13-page memorandum addressed to U.S. District Judge David N. Hurd.

The government also filed a motion seeking $30.2 million in forfeiture penalties from McGinn and Smith, whose bank accounts and assets were frozen three years ago under court orders. It's unclear that they have the assets to pay the proposed penalty.

A federal jury on Feb. 6 convicted the pair of conspiracy to commit mail and wire fraud, mail fraud, wire fraud, securities fraud, and filing false tax returns. The two also were the target of a civil suit by the Securities and Exchange Commission claiming they bilked investors of at least $80 million in a Ponzi scheme.

However, McGinn and Smith, formerly partners at the brokerage firm of McGinn, Smith & Co., filed motions asking a federal judge to overturn their convictions, saying the government's claims were “based on the complete failure of the government to attempt to comprehend concepts of investment banking and the inner-workings of running a broker-dealer.”

It will be interesting to see what the judge decides in this case. Stay posted.