Dan's Papers - September 12, 2008 - Indicted Quogue Mayor Plans To Stay On

Following a federal indictment on charges of illegal earnings through securities fraud, Quogue Village Mayor George Motz has since pleaded not guilty. According to the press release from Robert Nardoza of the United States Attorney's Office in Brooklyn:

"GEORGE M. MOTZ, the president, CEO and Chairman of the Executive Committee of Melhado, Flynn & Associates ("MFA"), a broker-dealer and investment advisor registered with the former National Association of Securities Dealers, was arrested [August 28th] and charged by indictment with securities fraud and altering documents to obstruct a United States Securities and Exchange Commission ("SEC") examination. The defendant is scheduled to be arraigned at 1:30 this afternoon before United States Magistrate Judge A. Kathleen Tomlinson, at the U.S. Courthouse, in Central Islip, New York."

It continues: "The charges in the indictment are merely allegations, and the defendant is presumed innocent unless and until proven guilty." The mayor has since surrendered to federal authorities, and then was released on $500,000 bond.

The official accusation arrived last week, charging that Motz "cherry-picked" profitable accounts for Melhado, Flynn & Associates, the Manhattan-based investment firm of which he is president and CEO. The charges imply he has been involved in illegal activity since 2003, and claims he has altered documents attempted to evade an investigation by the U.S. Securities and Exchange Commission.

The mayor has since announced publicly that he has done nothing wrong and will not resign his position in Quogue. (In an e-mail request from Dan's Papers to discuss his situation, Motz respectfully declined comment at this time.) However, according to the indictment, Motz and his firm had illegally earned at least $1.4 million during the span of the accusation.

Last year, civil charges were levied for the same reasons. The administrative document and notice of hearing from that investigation (dated February 26, 2007), states: "From at least January 2001 through April 2005 (the "relevant period") George M. Motz, the President, CEO and Chairman of the Executive Committee of MFA, engaged in fraudulent trade allocation - "cherry-picking" - at MFA [Melhado, Flynn & Associates]. During the initial period of the scheme - January 2001 until approximately September 2003 - Motz unfairly allocated trades that had appreciated in value during the course of the day to MFA's proprietary trading account and allocated purchases that had depreciated in value during the day to the accounts of his advisory clients. Beginning in the summer of 2003, Motz engaged in cherry-picking to favor one of the firm's advisory clients [a hedge fund called Third Millennium] over his other advisory clients."

The document goes on at length, defining the "cherry-picking" as Motz purchasing securities at or near the beginning of the trading day, then holding off until later - once he saw whether or not the securities increased in value - to keep or trade them. It also states that in the fall of 2003, Motz (along with the assistance of MFA Comptroller Jeanne McCarthy) allegedly "altered order tickets in an attempt to cover-up these fraudulent trade allocations." In other words, Motz allegedly would use client resources and MFA funds to make purchases, then alter the receipts in order to move the successful dealings to himself and MFA, while shifting losing securities to the clientele.

The accusation goes on to claim that the resulting earnings of $1.4 million, is only part of the problem. Reportedly, clients were not informed of the cherry-picking and that all decisions concerning the allocation of successful securities favored MFA and Motz, nor did they disclose they were favoring an advisory hedge fund client over others. However, when called for testimony in reference to this case, Motz (and McCarthy) invoked the Fifth Amendment privilege and refused to answer questions.

The future implications for Motz are unclear. Mayor of Quogue Village since 2002, he's also married to Quogue Village Justice Kittric Motz. Furthermore, he's chairman of The Surf Club of Quogue, a private beach club that gained national prominence through a documentary shot by the mayor's son, George Motz Jr. in the late 1990s. Its exclusivity is reflected from a quote taken from the Surf Club's own website: "Membership in the Club can now take several years, and why not?" However, Motz's involvement in the organization and town affairs has potentially affected his family and friends, according to an article from the The SoHo Journal website (dated June 1, 2007). The site claims there have been rumors that some of the mayor's associates at the club, as well as his wife, may also be investigated in this situation. But as of yet there have been no official or legal accusations or actions.

Otherwise, rumors have been the only new developments in the case since last week, and there has been no major uproar or public notice from village residents against the mayor. However, the results may be devastating to Motz, 66, especially if the New York Post is correct when it reported that he may potentially face 45 years in prison if found guilty. Nonetheless, his lawyer stands by him, recently telling press members, "George Motz is innocent, and he is looking forward to his day in court where all the facts are presented."