Crime

$8.5M Ponzi scheme alleged in NJ charges

Tuesday, December 13, 2011

A Philadelphia estate lawyer accused by New Jersey of heading an $8.5 million Ponzi scheme that targeted retirees has been charged with money laundering in a separate case.

An indictment unsealed Monday alleges that Michael Kwasnik stole more than $1 million from a client whose trust he was overseeing, using the money instead to pay investors and his law office's operating expenses.

Prosecutors allege that instead of depositing his client's money into the client's family trust, Kwasnik put the funds into a general account for his law firm.

Last week, the 42-year-old Kwasnik was sued in civil court by the state, which asked for restitution and a court order to stop him and others associated with him from selling investment securities in New Jersey.

Kwasnik, who has a law office in Cherry Hill but also practices in Pennsylvania, denied any wrongdoing through his lawyer.

Attorney Rocco Cipparone said he "anticipates that a full airing of the evidence and accurate accountings will reveal that Michael Kwasnik made proper disposition of any funds entrusted to him by the alleged victims, and that he did not usurp such funds to his personal advantage."

Kwasnik sold investments through Liberty State Financial Holdings Corp. and its subsidiary, Liberty State Benefits of Pennsylvania. The companies, which specialize in buying life insurance policies at a discount from retirees, filed for bankruptcy in July.

In the civil case, the government alleges Kwasnik headed a Ponzi scheme involving the sale of so-called "life settlements," which ostensibly offered retirees lump-sum payments for part of the policies but in many cases cost them much or all of their investment. Life settlement companies typically buy life insurance policies from elderly policyholders, with a purchase price based on the policyholder's life expectancy.

New Jersey Attorney General Paula Dow said Kwasnik "preyed on elderly investors" by selling unregistered securities for which he promised an annual return of 12 percent.

The lawsuit alleges that rather than invest the money as promised, Kwasnik transferred about $5 million for his personal use to his family-owned law firm while using other funds to pay existing investors.

Kwasnik met the investors by doing other legal work for them, including serving as a trustee who controlled assets for some of them. The attorney general's office alleged in the lawsuit that he used his control over some of the accounts to purchase the life settlements on behalf of investors.

Also named in the lawsuit were Kwasnik's father, William, the CEO of Liberty State Financial; securities salesmen Joseph Schifano and Daniel McCorry; and William P. Leonard, an investment adviser and former chairman of the board of Liberty State Financial. Calls seeking comment from them were not returned Monday.

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new jersey, fraud, ponzi scheme, crime
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