United States v. Timothy M. McGinn, David L. Smith
2015 U.S. App. LEXIS 8496
| 2d Cir. | 2015Background
- Defendants Timothy McGinn and David Smith ran broker-dealer McGinn, Smith & Company (MS&C) and were tried on a 32-count superseding indictment charging conspiracy, mail/wire fraud, securities fraud, and filing false tax returns for conduct from 2006–2010.
- The government proved MS&C offered three principal products: securitized receivable trusts, a bridge‑financing affiliate (MSTF), and four investment funds; investors were promised specific uses of proceeds and returns in PPMs.
- Evidence showed the defendants diverted trust and fund monies (including advancing funds before escrow minimums), used funds to cover shortfalls in other offerings, and diverted about $4.1 million for personal use while concealing these transfers and creating false accounting entries.
- FINRA’s investigation revealed commingling and transfers to defendants’ personal accounts; defendants allegedly gave false explanations and backdated/altered accounting entries in response.
- A 1999 draft letter by Smith calling the business a “Ponzi scheme” was read in cross‑examination; the district court limited but permitted use of portions after defendants ‘opened the door.’
- Jury convicted both defendants on conspiracy, multiple mail/wire and securities fraud counts, and tax counts; district court imposed imprisonment and ordered restitution and forfeiture. Court affirmed convictions/sentences but remanded to correct restitution wording to conform with the MVRA.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Sufficiency of evidence for mail/wire & securities fraud | Government: evidence of diversion, concealment, false statements and accounting supports intent and scheme to defraud | McGinn/Smith: lack of criminal intent; some conduct lawful (fees/loans); Smith not involved in certain transactions | Affirmed: viewed in light most favorable to government, evidence permitted rational jurors to find intent and participation beyond reasonable doubt |
| Sufficiency of evidence for tax‑return convictions | Government: advances were income not loans; defendants willfully omitted income from returns | Defendants: advances were loans; lacked willfulness/good‑faith belief | Affirmed: jury reasonably found no bona fide loan intent; willfulness instruction adequate and supported by evidence |
| Jury instruction on good‑faith defense to tax counts | Government: overall instruction conveyed willfulness so no reversible error | Defendants: court said good‑faith defense not applicable, which was legally incorrect and prejudicial | No plain error: instruction read as a whole encompassed good‑faith defense; overwhelming evidence made error harmless |
| Use of Smith’s 1999 letter at cross‑examination | Government: portions were permissible after defendants opened the door | Defendants: admission/reading of inflammatory, out‑of‑time letter was prejudicial and created a constructive amendment or fatal variance | Improper use was "manifestly erroneous" but harmless given strength and cumulative nature of other evidence; no constructive amendment/variance |
| Restitution offset language under MVRA (Gov’t cross‑appeal) | Government: judgment should clarify that only receiver’s actual distributions (not mere collections) offset restitution | Defendants: original language permitted deduction of Receiver’s collected funds | Remanded: district court must correct judgments to state only actual distributions to victims by Receiver may offset restitution (to conform with MVRA) |
Key Cases Cited
- United States v. Yannotti, 541 F.3d 112 (2d Cir.) (standard for sufficiency review)
- Fountain v. United States, 357 F.3d 250 (2d Cir.) (elements of mail/wire fraud)
- United States v. Guadagna, 183 F.3d 122 (2d Cir.) (fraudulent intent requirement in mail/wire fraud)
- United States v. Cassese, 428 F.3d 92 (2d Cir.) (definition of willfulness under securities statute)
- United States v. LaSpina, 299 F.3d 165 (2d Cir.) (elements of § 7206(1) tax‑return offense)
- United States v. Rosenthal, 470 F.2d 837 (2d Cir.) (when advances constitute income vs. loans)
- United States v. Pomponio, 429 U.S. 10 (1976) (permissible tax‑willfulness instruction)
- Cheek v. United States, 498 U.S. 192 (1991) (good‑faith belief about tax law negates willfulness)