U.S. prosecutors to appeal sentence in fraud case

Ex-investment manager is given home detention

August 17, 2002|By Gail Gibson | Gail Gibson,SUN STAFF

A former Alexander & Alexander investment manager who admitted running a risky trading scheme that caused more than $27 million in losses was sentenced yesterday to six months of home detention, prompting federal prosecutors to say they would appeal for jail time.

William F. Mahon, who worked in Owings Mills as manager of Alexander's U.S. Treasury investment portfolio in the mid-1990s, also admitted taking $190,000 in kickbacks from a Florida securities dealer who heavily profited from commissions on the trades, federal records show.

Mahon pleaded guilty in June to charges of defrauding his former employer and failing to report the bribe money on his tax returns. Federal prosecutors said yesterday they were seeking a 15-month prison sentence for Mahon, a term they said acknowledged his cooperation in the investigation and his payment of more than $450,000 in restitution, interest and penalties.

At sentencing, however, U.S. District Judge William M. Nickerson agreed with defense arguments that Mahon was eligible for a probation sentence. The judge ordered Mahon to spend six months under home detention and 2 1/2 years under supervised release, a decision that was met with brief applause by Mahon's family members in the courtroom.

In a rare move, U.S. Attorney Thomas M. DiBiagio responded by saying that his office would appeal the sentence to the 4th U.S. Circuit Court of Appeals in Richmond.

DiBiagio, who has made pursuit of major white-collar crimes a priority, said in an interview: "The message should go out: We are going to investigate these cases, and we are going to seek substantial prison sentences."

Unusual challenge

Federal prosecutors typically do not challenge sentences, although high-profile exceptions have occurred. In 1995, prosecutors in Baltimore appealed the probation sentence handed down by Nickerson to Annapolis lobbyist Bruce C. Bereano after his conviction in a campaign-contribution fraud scheme.

The appellate court ordered a new sentence for Bereano. At a second sentencing hearing in 1998, Nickerson gave the convicted lobbyist a 10-month sentence - allowing Bereano to serve five months in a halfway house and five months on home detention.

Mahon's attorney said the sentence yesterday for his client was proper.

"If they do go ahead and appeal, it's extremely disappointing," said David P. King, a defense attorney from Burlington, N.C. "This is a man who has cooperated for more than five years with the government."

King said the government's actions could deter other criminal defendants from cooperating with investigations. He questioned why prosecutors would appeal after they had acknowledged that Mahon's cooperation could be grounds for a "downward departure" in the federal sentencing guidelines.

"Frankly, I think it's somewhat disrespectful to the court to argue for a downward departure and then complain about it when the judge shows his own discretion," King said.

DiBiagio said the sentence was inappropriately light given facts of the case and the amount of money lost or put at risk.

According to federal court records, Mahon worked with the Florida securities dealer, Dean J. Jupiter, to conceal millions of dollars in unauthorized mortgage-backed derivatives trades. The scheme at one point put at risk as much as $70 million in Anderson & Anderson funds.

The eventual loss to the insurance brokerage was more than $27 million, according to court records. Assistant U.S. Attorney Barbara S. Sale, who handled Mahon's criminal case in Baltimore, said some of the loss was recovered through investments.

A civil complaint filed by the Securities and Exchange Commission in October 2000 alleged that Jupiter was making so much money on commissions from the unauthorized securities trade that he began paying Mahon kickbacks - eventually totaling $190,000 - to keep the derivatives scheme rolling.

Investigators in the Internal Revenue Service's criminal division charged Mahon with failing to report the kickback funds as income on his state and federal tax returns.

Vouching for Mahon

In arguing for a probation sentence, King noted in court filings that Mahon did not enrich himself with corporate money and that no shareholders were harmed by Mahon's conduct, which was uncovered after Alexander & Alexander was bought by AON Corp. in 1997.

Nickerson also received letters vouching for Mahon's character from the Rev. John M. Dennis, the head of Loyola Blakefield in Towson, where Mahon's brother works as the executive vice-president of the private Catholic boys school, and from Mahon's current employer, Healthcare Affiliates Inc. President Michael R. Matejevich.

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