Melhado, Flynn & Associates, the Manhattan investment firm headed by Quogue Mayor George Motz, pleaded guilty to one count of securities fraud in federal court in Central Islip on Thursday afternoon for its part in a “cherry-picking scheme” that illegally earned the company more than $2.2 million.
Mr. Motz, MFA’s codefendant in the case, pleaded guilty to the same charges in federal court on Tuesday. A trial was scheduled to begin on October 20.
Under the federal sentencing guidelines, MFA faces a fine of up to $184 million.
Prior to entering his guilty plea on Tuesday evening, Mr. Motz, who served as president and CEO of MFA, admitted to buying blocks of stocks and waiting until the end of the day to see if the trades were profitable. If the trades were profitable, Mr. Motz said he would assign them to the MFA proprietary account. If they were not, he assigned them to one of his clients’ discretionary accounts.
“MFA put its financial self-interest ahead of that of its clients and compounded its crime by not bringing this conduct to light once it became apparent,” United States Attorney Benton J. Campbell said in a prepared statement. “Such corporate misdeeds have no place in our securities markets and will be vigorously prosecuted.”
Prosecutors agreed to drop a second felony charge, of document alteration, that was filed against the firm in November 2008, when it was first indicted. Investigators had claimed Mr. Motz doctored paperwork in an attempt to cover up the fraud.
The indictment against Mr. Motz and MFA stated that from November 2000 until June 2005, Mr. Motz and MFA engaged in a fraudulent trade allocation scheme known as “cherry-picking,” a practice in which a person executes trades without assigning those trades to a specific trading account and later places the profitable trades in his own account. An independent investigation of MFA by the Securities and Exchange Commission between November 2003 and December 2003 alleged that during that time Mr. Motz altered documents, making it appear as though the trades in question were allocated earlier in the day than when they were actually processed, according to a copy of the indictment against him.
Bryan Finlayson on Oct 16, 2009