U.S. Indicts Ex-Investment Broker
A federal grand jury has indicted former investment broker S. Jay Goldinger on four counts of wire fraud in connection with an alleged scheme to use clients’ funds to cover his trading losses in 1994 and 1995, U.S. officials said Monday.
The indictment was released as regulators announced they had settled their civil cases against Goldinger, a Beverly Hills broker who owned a racehorse and bet as much as $100 million of his clients’ money on risky Treasury options, which he likened to a casino game.
As part of the settlements, Goldinger agreed to repay $6 million of the commissions he’d earned to the Commodity Futures Trading Commission and a yet-to-be-determined amount to the Securities and Exchange Commission. But whether regulators will be able to collect on the settlements is in doubt.
SEC officials had accused Goldinger of stealing $15.9 million from PairGain Technologies Inc. of Tustin, through a Ponzi-style investment scheme. Instead of investing PairGain’s excess cash in low-risk Treasury securities as he’d promised in the mid-1990s, the SEC said, Goldinger commingled the firm’s money with other investors’ funds, made risky futures trades and used profits from other clients’ accounts to cover up deepening losses in PairGain’s account.
PairGain, meanwhile, invested tens of millions more with Goldinger even after concerns mounted over his trades. The firm “failed to properly account for and disclose its investment losses” in its regulatory filings, the SEC said. After Goldinger told the company he could not recover any more of its money, PairGain was forced to disclose it had lost $15.9 million on his investments, regulators said.
PairGain did not admit or deny wrongdoing in a related civil case, but consented to an order barring it from future violations. The firm’s chairman, Charles S. Strauch, and chief financial officer, Charles W. McBrayer, settled SEC allegations against them by agreeing to pay $25,000 each in penalties.
PairGain did plead guilty to one felony count Monday for failing to maintain accurate books and records and will pay $1.4 million in fines and investigative costs, U.S. officials said. The firm said it would retain an expert to conduct a review of its accounting controls and record-keeping.
In a statement Monday, PairGain said its officers “acted in what they believed were the best interests of the shareholders in this matter. Only after an extensive investigation did it become obvious that PairGain and Goldinger’s other clients were the victims of a massive fraud.”
Brian O’Neill, Goldinger’s attorney, said his client intends to plead guilty to the federal charges and has “cooperated with government investigations into the activities of others.” O’Neill said his client aided the CFTC case against Refco Inc., a futures brokerage that allegedly cleared the trades from Goldinger’s defunct firm, Capital Insight. Refco earlier this year said it will pay $8 million to settle the allegations.
Aside from PairGain, at least two other companies reported losses tied to Goldinger’s investments.
Since leaving the investment business in December 1995, O’Neill said, Goldinger has been operating Food on Foot, an organization to feed and clothe the homeless.
