Malcolm Segal

Date:

July 3, 2015

Type of alert:

Ponzi Scheme  

On July 1, 2015 the SEC charged Malcolm Segal of Langhorne, Pennsylvania and Boynton Beach Florida of conducting a Ponzi scheme. Segal was formerly a registered representative at Aegis Capital Corp. The SEC alleged Segal was stealing investor money to purchase a condominium in Florida and fund his own vacations and other luxuries. From at least 2009 through July 2014, it is alleged that Malcolm Segal fraudulently sold so-called certificates of deposits (CDs) to his brokerage customers by falsely claiming that he could get them higher interest rates of return on FDIC-insured CDs than otherwise available to the general public. In some instances, Segal purchased CDs on behalf of investors but secretly redeemed them early and took the proceeds. Other times, Segal did not purchase CDs at all despite telling customers he had. He allegedly raised approximately $15.5 million from at least 50 investors. Besides spending investor money on himself, Segal used it in Ponzi scheme fashion for purported interest payments and principal repayments to earlier investors.

Segal allegedly orchestrated the fraudulent sale of CDs to his brokerage customers and others through J&M Financial and National CD Sales, entities which were effectively Segal’s alter egos and that existed in name only and shared a Post Office Box address that he controlled. Segal identified himself as the President of both of these entities and further described them as “certificate of deposit placement compan[ies].”

In 2009, Segal was alleged to have bought at least 134 CDs with interest rates between 1.14% and 2.75% (in amounts ranging from $5,000 to $248,000), totaling $11,690,000 for clients of a registered investment adviser (“Adviser A”). Segal did not purchase these CDs in the name of the individual investors, but purchased the CDs in the name of clients of the advisor. By titling the CDs in this manner, Segal, and not the individual investor, retained control over the funds invested in the CD and denied investors the protections usually associated with FDIC-insured CDs. With this control, Segal redeemed at least 76 of those CDs, totaling at least $5 million, before they reached their maturation date.

Beginning in May 2009, according to the Complaint Segal also purchased at least $750,000 in CDs through a bank account he controlled in the name of National CD Sales Inc. Segal wired investor funds from this account to purchase the CDs from various banks. Those CDs were held in the name of “National CD Sales Inc. FBO NCDS CD Participation Program,” which was also the name on the bank account. Segal then redeemed the CDs early and commingled the proceeds into the J&M Financial account. From at least 2009 through July 2014, Segal raised approximately $8.1 million from the fraudulent sale of entirely non-existent CDs. After 2011, Segal stopped buying CDs altogether and relied on entirely fictitious investments to perpetuate the fraud.

Segal is accused of convincing certain investors to wire funds to one of his entities for the purpose of buying CDs. Instead of purchasing the CDs as promised, Segal diverted the investor funds to a bank account he controlled and continued to use the funds to pay earlier investors and to fund his extravagant lifestyle. After investors wired their funds into the J&M Financial account, Segal sent investors a document on National CD Sales letterhead purporting to be a “confirmation” that acknowledged the investor’s “deposit into the Custodial CD Program.” The body of the document purported to confirm the issuer, settlement date, principal amount, net rate, term, maturity date, the tax identification number, and the alleged location of the CD (which Segal listed as “Held in Safe Keeping”). At the bottom of the document, it stated: “Depositor has authorized National CD Sales Inc. to purchase the above certificate for their [sic] benefit.” Each of those statements was also materially false, because Segal never purchased those CDs.

The Commission further alleges that Segal eventually started stealing directly from his customers’ brokerage accounts in a last-ditch effort to keep funding the Ponzi payments. He forged letters of authorization to facilitate the transfer of customer funds to accounts he controlled, notably forging the signature of one customer’s wife who had died before the date of the transfer. The scheme collapsed in July 2014. In a parallel action, the U.S. Attorney’s Office for the Eastern District of Pennsylvania today announced criminal charges against Segal. Segal has been barred by the Financial Industry Regulatory Authority (“FINRA”) from association with any broker-dealer.

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