Alabama man who ran La. company sentenced to 5 years in securities fraud scheme

Alabama man sentenced to 5 years in fraud case

NEW ORLEANS — An Alabama man who ran a financial services company in Baton Rouge was sentenced Thursday to five years in prison for a securities fraud scheme in which more than 150 clients lost tens of millions of dollars after they retired.

Before his sentencing, David McFadden, 62, of Orange Beach, Ala., turned to face a courtroom filled with his victims — mostly elderly residents who had worked at an Exxon Mobil Corp. facility in Baton Rouge — and apologized for leaving their finances in tatters.

“I know you all were literally watching your financial future evaporate before your eyes,” he said. “I let you all down, and words cannot express how much I regret that.”

McFadden pleaded guilty in May to conspiring to commit securities fraud. A plea agreement called for McFadden to serve between 18 months to two years in prison, but U.S. District Judge Carl Barbier refused to accept the deal and sentenced him to five years, the maximum prison term for the charge to which he pleaded guilty.

“You have caused tremendous injury to these folks,” said Barbier, who also ordered McFadden to pay a $250,000 fine. “You’re going to have to live with that on your conscience for the rest of your life.”

McFadden, who ran Diversified Financial Services in Baton Rouge and was a registered representative for Securities America Inc., promoted himself as a certified public accountant and financial planner. But he failed to tell clients that he hadn’t been a licensed CPA since 1987.

McFadden held seminars aimed at longtime Exxon employees, advising them to make early withdrawals from their retirement accounts and deposit the money into stock accounts. McFadden made commissions on the purchase of “high volatile” securities that weren’t appropriate for his clients, according to a court filing.

Assistant U.S. Attorney Dorothy Manning Taylor said McFadden steered his clients toward risky investments so he could make higher commissions.

“He lied to them and told them they were going to have their nest eggs for the rest of their lives,” she said.

Eddie Castaing, McFadden’s lawyer, said McFadden made money for his clients before they “ran into the wrong kind of market.”

“And he didn’t have them in the right place for that kind of market,” Castaing said, adding that his client lived “an exemplary life” before he was caught up in the scheme.

Many of McFadden’s victims have recovered at least a portion of their losses through arbitration proceedings and settlements with Securities America, but Barbier heard from victims who said they are still suffering.

Arthur Nicholas Lambert III, 66, of Baton Rouge, said McFadden induced him and others to retire years before they could reasonably have afforded to leave their steady jobs at Exxon. Many of them, he added, later had to take jobs that paid far less than what they earned at Exxon.

“I’m probably going to have to work for quite a few years before I can think about retiring,” he said.

Preston Moreau, 65, of Baton Rouge, said he retired 10 years ago and invested nearly $500,000 of his life savings, only to see it dwindle to around $55,000. He has recovered about half of his original investment, but much of that money went to his lawyers.

“I do not say that David McFadden stole one dollar from me,” he said. “I think he lied to me, by a lie of omission … I think he foolishly lost it.”