A financial broker who bilked clients out of $8.9 million in an investment scam had his state sentence and order to pay restitution overturned by the Indiana Court of Appeals.
Jerry Smith pleaded guilty to three federal charges in June 2012 in U.S. District Court for the Southern District of Ohio. He and his business partner, Jasen Snelling, presented themselves to victims as day traders who garnered unusually high returns on investments for clients in Ohio, Kentucky and southeastern Indiana. However, the pair was actually running a ponzi scheme.
Indianapolis-based OneAmerica Securities Inc. subsequently agreed to pay Indiana $805,000 to settle allegations it failed to supervise Smith when he served as a "registered representative" from 2005 to 2008.
OneAmerica Securities did not admit to any liability in the agreement with the Indiana Securities Division. The agreement, filed Oct. 17, 2014, said OneAmerica agreed to the settlement "to avoid the expense and uncertainty of litigation and the potential impairment of its goodwill."
Smith was also charged in Franklin County. The county prosecutor’s office alleged he engaged in unlawful acts related to the offer or sale of security and he failed to register as a broker-dealer with the state of Indiana.
After the Franklin Circuit Court denied his motion to dismiss the state charges, Smith appealed.
The Court of Appeal provided some relief, holding the trial court erred in failing to dismiss the counts alleging that Smith violated state law by selling securities that had not been registered. However, the appellate court ruled Smith could face prosecution for multiple counts for engaging in business as a broker-dealer without having registered.
Consequently, Smith pleaded guilty to those charges. At sentencing, the trial court imposed the maximum sentence of 40 years with 20 years suspended to probation. It also ordered Smith to pay $410,189.16 in restitution to the Indiana victims.
Again, Smith appealed.
The Court of Appeals reversed the award of restitution and the sentence.
In overturning the restitution award, the court chastised the state. The appellate panel asserted the state failed to analyze its earlier opinion that “clearly held” Smith could face prosecution on state charges of failing to register as a broker-dealer.
In addition, the federal charges were the result of Smith’s conduct which led to the victim’s losses. The state did not show that Smith’s failure to register as a broker-dealer caused the Indiana victims to suffer the financial loss.
“…this is not an instance in which there simply was a failure of proof regarding the amount of restitution, in which case we might remand for the State to have another opportunity to submit proof…,” Judge Michael Barnes wrote for the court. “Rather, there is no legally tenable basis for awarding restitution in this case, and we will not remand for another hearing.”
Finally, the Court of Appeals concluded that Smith committed one single act of criminal conduct by failing to register as a broker-dealer. The gravamen of the offense is not the number of times Smith transacted business but rather it was his failure to register. As such, this constitutes a single episode of criminal conduct.
The Court remanded for the trial court to craft a sentence complying with the court’s calculation that the total term Smith may receive is 10 years.