Owner of Stock Holding Company Sentenced to 4 1/2 Years for Securities Fraud

Posted On Friday, February 26, 2021
By: Christin M. Roberts

On February 16, 2021, U.S. District Judge Jeffrey Schmehl sentenced Robert McCabe to 4 1/2 years in federal prison and ordered McCabe to pay over $1.1 million in restitution to the more than 40 victims of his decade-long fraudulent investment scheme. McCabe plead guilty in November of 2020 to 21 counts of fraud including securities fraud, wire fraud, and mail fraud. The SEC had previously instituted a parallel civil action seeking injunctive relief, disgorgement, and civil money penalties. A judgment against McCabe and his holding company was entered in that case in November of 2020 following McCabe’s plea of guilty.

From September 2010 – June 2020, McCabe defrauded investors into purchasing stock in his company, McCabe Properties, Inc. Many of these investors were McCabe’s family, life-long friends, community members, and fraternity brothers from his alma mater, Lafayette College. McCabe used his connection to fellow fraternity brother Roger Newton, founder of Esperion Therapeutics, a pharmaceutical company, to lead his investors to believe that McCabe was affiliated with Esperion. McCabe falsely claimed that his company owned “founders shares” in Esperion. McCabe purported that an investment in McCabe Properties was an investment in Esperion. Neither McCabe nor McCabe Properties owned stock in Esperion. Further, McCabe led his investors to believe that Esperion was developing a new drug, and that Esperion would eventually be bought by another company. McCabe promised his investors that their “founders shares” could be sold once Esperion was acquired by another company.

For a decade, McCabe forwarded press releases, financial analysis reports, and news articles about Esperion to an email list of his investors. He called this email list a “hit parade” because the press releases, financial reports, and articles created the illusion that McCabe was affiliated with Esperion. He would inform investors periodically that shares in McCabe Properties had become available, usually claiming that it was the result of the death of one of the other investors. McCabe’s investors were led to believe that they were receiving exclusive access and a “rare opportunity” to acquire recently freed up stocks in McCabe Properties. McCabe urged his investors that these freed up stocks were limited and only available on a first-come, first-served basis. These claims were false. Nonetheless, McCabe would accept each new investment, issue a stock certificate, and then use the investment funds for his own personal expenses. As a result, McCabe defrauded his investors out of hundreds of thousands of dollars.

In addition to the amount of loss, the high number of victims, and the level of sophistication of his scheme, McCabe’s criminal history played a role in the sentence by Judge Schmehl. Specifically, in the 1980’s McCabe, a former stockbroker, was convicted of securities fraud and sentenced to prison.

Two Former Municipal Officials Plead Guilty in Asbestos Abatement Matter

Posted On Tuesday, February 23, 2021
By: James W. Kraus

On February 18, two former officials of the town of New Windsor, New York, pleaded guilty to charges of negligently causing the release of asbestos during the 2015 demolition of former Army barracks at Stewart International Airport. The convictions of both men in the S.D.N.Y. under the Clean Air Act, 42 U.S.C. §7413(c)(4), arise out of their work on soliciting bids for demolition work without disclosing that the property contained asbestos. The pleas of guilty and convictions point to the significant consequences that both government officials and construction contractors can face when performing construction work without adherence to federal and state environmental laws. It is noteworthy that the section of the Clean Air Act under which both men were charged only requires proof under a negligence standard.

In June of 2012, James Petro, then the Planning and Zoning Coordinator and Property Development Manager for New Windsor, and town engineer Richard McGoey were among town officials who discussed the need to prepare a request for bids to abate asbestos in and demolish ten buildings that were a part of a former military site acquired by the town from the United States Army. Although they had initially requested bids from asbestos inspectors to conduct asbestos surveys in the ten buildings, they ultimately decided that asbestos surveys were unnecessary because the ten buildings had already been surveyed and found to have contained asbestos.

In 2015, Petro and McGoey were among city officials who drafted a request for proposals to demolish the ten buildings. The Request for Proposal did not disclose the presence of asbestos-containing materials. In July of 2015, the town awarded the contract to demolish the ten buildings to an unnamed contractor. That contractor was not a licensed asbestos contractor and had limited experience with asbestos. The contractor did not submit a plan to abate the asbestos in the ten buildings. 

During a six day period in August of 2015, the contractor demolished the ten buildings, without first removing the asbestos, by knocking the buildings down with a backhoe. This resulted in releasing asbestos into the open air. Both Petro and McGoey visited the site while the buildings were being knocked down. The demolition work was stopped on August 19, 2015 when an official of the New York State Asbestos Control Bureau suspended work.

In announcing the charges and pleas of guilty, the government highlighted its finding that at the heart of the illegal conduct by both men was their desire to cut corners and do things on the cheap. As stated above, the section of the Clean Air Act under which both men were charged and convicted only requires proof under a negligence standard. Those charges carry a maximum sentence of one year in prison. Both men are scheduled to be sentenced on May 27, 2021.