Will security investors McGinn and Smith do time?

Security industry investors Timothy McGinn and David L. Smith are set to be sentenced next month and could face years in prison after being convicted of fraud earlier this year. But whether they'll be sent to prison or just get probation and how much the Albany, N.Y.-based brokers owe as a result of their fraudulent activities are questions that remain up in the air, according to a recent article from the Time Union, an Albany, N.Y.-based newspaper.

The two men are seeking leniency and having friends and relatives send letters testifying to their good characters, according to the article.

A New York grand jury about one year ago indicted McGinn, 64, and Smith, 68—the founders of an investment firm that conducted dealings in the alarm industry—on a variety of fraud charges.

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—who 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—are slated to be sentenced on their criminal convictions on June 28. Their possible sentences range from probation to more than a decade in prison, according to the Times Union.

However, McGinn and Smith, formerly partners at the brokerage firm of McGinn, Smith & Co., have filed motions asking a federal judge to overturn their convictions, saying the government's allegations against them “are 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.”

Also, Smith's attorney, William J. Dreyer of Albany, is asking that the sentencing date be delayed because it's not clear how much victims are owed. Here's what the article had to say:

Dreyer wrote a letter to [U.S. District Judge David] Hurd saying there is not enough information available from the government or a federal receiver to accurately calculate the losses to victims. He said it will be a "large undertaking" to establish cash flows for each of the trusts and operating companies that were embroiled in the criminal case and also to determine the amount of back taxes owed by David and Lynn Smith, [David Smith's wife].

Also, Smith was acquitted on 14 of the 29 counts he faced, and Dreyer told the judge that makes "a proper calculation of the fraud amount the more challenging."

In addition, Dreyer said the government recently notified him it has pegged the forfeiture amount owed by McGinn and Smith at "four times" the $8 million listed in the indictment.

"No supporting data as to how such a number was reached was provided and this court should find that because the receiver is not in a position to determine a loss amount, there is no possible way that the government could make a logical calculation," Dreyer wrote. "As such, on its face, the government's proposed loss amount is misleading, obscene and further reinforces its complete ignorance of investment banking and accounting standards."

Stay posted here for updates on this interesting case.