Hoffenberg Pleads Guilty in Massive Securities Fraud : Crime: Financier could face a 25-year sentence. Investors were bilked of $500 million.
Financier Steven Hoffenberg, accused of running one of the biggest Ponzi schemes in history, pleaded guilty Thursday to defrauding thousands of Steven Hoffenberg investors in California and nationwide of about $500 million.
Hoffenberg, who headed the scandal-ridden Towers Financial Corp., pleaded guilty in U.S. District Court in Manhattan to five counts of securities fraud, tax evasion and obstruction of a Securities and Exchange Commission inquiry.
The 50-year-old businessman, who became a public figure when he held himself out as the “savior” of the money-losing New York Post in 1993, faces a maximum sentence of 25 years in prison and fines of $1.4 million.
Hoffenberg is accused of operating Towers, a bill-collection and health care financing business, as a huge Ponzi scheme. He and others allegedly filed false statements grossly exaggerating the company’s assets to lure investors into buying the firm’s securities. He then used the millions of dollars from those sales to repay earlier investors, cover operating costs and enrich himself.
Towers filed for bankruptcy protection in March, 1993, citing liabilities of $271.6 million and assets of $251.7 million.
Asked in court to specify the crimes he had committed, Hoffenberg accused three accounting firms--Price Waterhouse of Barbados, Marvin Basson & Co. and Richard Eisner & Co.--of issuing inflated financial statements for Towers and said he had cooperated.
Last September, Basson was charged with fraud, accused of falsely certifying the accuracy of Towers’ statements.
Hoffenberg also said that his personal accountant, Winneck & Sanders, had “sat down with me and worked up a scheme” to file returns that “I knew to be false.” And he accused his former attorneys, without naming them, of helping concoct a false story that he used to derail regulators.
Hoffenberg also pleaded guilty to one count stemming from an indictment filed in federal court in Chicago accusing him of defrauding Associated Life Insurance Co. and United Fire Insurance Co. of more than $3 million. After acquiring the two Illinois companies in 1987, he allegedly misused their funds in his failed attempts to buy Pan American World Airways and Emery Air Freight Inc.
After a two-year investigation, Tower Collections, a Santa Monica-based subsidiary of Towers, was accused in 1990 by the state of California of bilking Southland businesses by improperly keeping receivables it had collected on behalf of its clients. The company reached a settlement with the state, promising to pay back the money owed to clients.
In March, 1993, a class-action suit was filed in Los Angeles federal court against Towers, alleging fraud in the sale of $215 million of high-yield notes to more than 2,800 investors nationwide. The civil case is pending.
