Damages Demanded in Long Ponzi Scheme

BUFFALO, N.Y. (CN) - Three clients of an investment adviser who pleaded guilty to running a 20-year Ponzi scheme seek damages from the adviser and the companies he worked for.

Read Courthouse News' Securities Law Review.

Mary Jane Andrews and Daniel and Sharyn Ballou sued Timothy Geidel, Georgetown Capital Group and Royal Alliance Associates, in Federal Court.

The plaintiffs claim they lost more than $132,000 in "bogus securities" Geidel sold them.

Geidel, of suburban Buffalo, was a securities broker and investment adviser with Georgetown Capital, of Williamsville, and was registered with Royal Alliance, of New York City, according to the complaint.

Geidel offered his services through those companies for more than 20 years, developing a roster of more than 100 clients, the complaint states. Many of his clients were active or retired members of the Lake Shore Central School District in Angola, about 30 miles south of Buffalo.

Geidel "conducted a Ponzi scheme through the securities and investment adviser services of Royal Alliance and Georgetown Capital," beginning in June 1990 and continuing for two decades, the plaintiffs say.

With "false representations, assurances and promises," Geidel got the plaintiffs and others "to make substantial investments" in certificates of deposit that he said would return 6 percent or more, according to the complaint.

Clients received periodic account statements and summaries of their equity and earned interest in the special CDs.

"Geidel took all of the foregoing actions while knowing that the CDs that he offered to the plaintiffs and other clients were fictitious and nonexistent," the complaint states. "Geidel misappropriated investment funds for the personal use of himself and his wife."

Eve Geidel also is a defendant in the case.

It wasn't until the fall of 2010, when a client asked Georgetown Capital about cashing in a CD, that the scheme was uncovered. Georgetown and Royal Alliance fired Geidel - too late, the plaintiffs say - as the companies "owed a duty to oversee and supervise their registered representatives and agents to ensure compliance with the securities laws."

"Rather than supervise Geidel, Royal Alliance and George Capital allowed him to function with almost complete autonomy and, in fact, fostered his ability to solicit clients and work independently without supervision, including that they provided him with grandiose titles such as 'Wealth Management Team Leader' and being the head of the 'Geidel Group'," the complaint states.

The plaintiffs say the companies have denied any responsibility in the scheme.

But the complaint cites two other cases in which Royal Alliance allegedly failed to supervise investment representatives, drawing fines from Connecticut's banking commissioner and the SEC.

The conduct of its representatives in those cases was similar to Geidel's, according to the complaint.

"As a result of the willful, reckless and grossly negligent conduct by Royal Alliance, the investing public has time and again been subjected to Ponzi schemes and securities fraud violations by its registered representatives," the complaint states.

Royal and Georgetown Capital "knew or should have known that Geidel was engaged in fraudulent conduct but failed to take steps to prevent Geidel's primary violation of the securities law," according to the complaint.

"Royal Alliance and Georgetown Capital Alliance were culpable participants in Geidel's fraudulent acts and omissions."

The plaintiffs seek compensatory damages from the companies, and punitive damages from Geidel for fraud and conversion.

They are represented by Charles Ritter Jr., with Duke, Holzman, Photiadis & Gresens, of Buffalo.

Geidel pleaded guilty in September 2011 to federal charges of defrauding more than 40 investors of $1.3 million, The Buffalo News reported.

He was sentenced in April to 3½ years in prison and was ordered to make restitution.

The newspaper said many of his victims were lifelong friends or family members.

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