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

Pietragallo Gordon Alfano Bosick & Raspanti, LLP
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Pietragallo Gordon Alfano Bosick & Raspanti, LLP

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.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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