Bloomberg News

Gryphon’s Marsh Gets Eight Years in Prison in Stock-Tip Case

September 20, 2011

(Updates with lawyer’s comment in the fifth paragraph.)

Sept. 20 (Bloomberg) -- Kenneth Marsh, the “ringleader” behind the Gryphon Holdings Inc. boiler-room operation on New York’s Staten Island, was sentenced to eight years in prison for his role in defrauding almost 5,500 people out of $20 million.

Marsh, 44, the last of the 18 Gryphon defendants to learn his prison term, was sentenced today by U.S. District Judge Jack Weinstein in Brooklyn, New York. He pleaded guilty in April to one count of securities fraud, admitting he misled investors into paying for phony stock tips.

“The victims were heard and they told heart-wrenching stories,” Weinstein said.

Gryphon charged clients as little as $99 and as much as $250,000 for access to its investment recommendations, according to a related civil lawsuit by the U.S. Securities and Exchange Commission. The other 17 defendants in the scheme, including members of its sales force, all pleaded guilty and got sentences ranging from three to 25 months. Marsh personally made $1.9 million through Gryphon, according to the SEC complaint.

“The court endeavored mightily to balance all of the factors and came up with a fair and just sentence,” Alan S. Futerfas, one of Marsh’s lawyers, said after the hearing today.

Futerfas said he would have to discuss with Marsh whether to appeal the sentence.

Fictitious Names

Marsh, a former stockbroker who had been barred from the securities industry, used the fictitious names Michael Warren and Ken Maseka to pose as two investment advisers with experience working at Goldman Sachs Group Inc. and Lehman Brothers Holdings Inc.

Seven former salesmen and Marsh’s ex-wife, Nicole Marsh, who ran Gryphon with him, cooperated with prosecutors, according to the government. Nicole Marsh, 32, was sentenced to three months in prison on Sept. 14.

“The defendant made criminals out of otherwise law-abiding people,” the judge said today.

Some victims lost life savings, divorced and even contemplated suicide because of the Gryphon fraud, Assistant U.S. Attorney Roger Burlingame said in court today. The prosecution had previously played tapes of Marsh training his sales force in high-pressure tactics and referring to the customers as trained dogs.

“The defendant has shown absolutely no acceptance of his crime,” Burlingame said.

Strip Mall

Marsh was charged in April 2010. He has been in jail since November, after he was accused by prosecutors of engaging in conduct similar to actions that led to his arrest and he was unable to raise the additional bail required.

Gryphon falsely claimed to have a trading desk and a $1.4 billion hedge fund, according to the government. The company sometimes told investors its office was in the New York Stock Exchange when it was in a strip mall in the New York borough of Staten Island.

Marsh lied about graduating from Columbia University in New York and the Wharton School of Business in Philadelphia, the SEC said.

Gryphon’s website also falsely claimed an endorsement from George Soros, the billionaire hedge-fund manager, according to the SEC suit.

Weinstein twice postponed imposing Marsh’s prison term.

At an Aug. 11 hearing, the judge said he leaned toward five years. After hearing from seven victims and listening to tapes of Marsh training the sales force, the judge decided to postpone his decision.

Longer Sentence

Weinstein, at the next hearing on Sept. 14, said he would impose a 10-year sentence. Marsh’s lawyers protested and said they wanted an opportunity to argue for a lower prison term or to accept the judge’s offer to withdraw his guilty plea.

They said it was because of Weinstein’s mention of a five- year term -- far below the guidelines -- that they didn’t fight the government’s $10.5 million calculation of the restitution Marsh and other defendants would have to pay to victims. The amount of the loss affects the guideline range.

“It’s a very serious crime and he’s the ringleader,” Weinstein said at the hearing last week. “People have to be deterred from doing what he did.”

Fraud Amount

Futerfas argued the fraud amount should be limited to the $99 introductory fee subscribers paid, totaling $539,154 for 5,446 customers.

Using the government’s loss number, nonbinding federal guidelines put Marsh’s sentencing range between about 11 and 14 years, prosecutors have said.

Futerfas has argued in a court filing that his client should be sentenced leniently in part because the trades he recommended were consistently profitable. Prosecutors disputed that.

The two sides argued the loss-calculation issue again today before Weinstein imposed the eight-year prison sentence.

The criminal case is U.S. v. Marsh, 10-cr-00480, and the SEC case is SEC v. Gryphon Holdings Inc., 10-cv-01742, U.S. District Court, Eastern District of New York (Brooklyn).

--Editors: Mary Romano, Andrew Dunn

To contact the reporter on this story: Thom Weidlich in Brooklyn, New York, at tweidlich@bloomberg.net.

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net.


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