The United States Attorney's Office for the Northern District of California announced that Sherman S. Smith was sentenced on February 13, 2004 to 37 months in prison for securities fraud in connection with his fraudulent handling of approximately $1.77 million of an investor's inheritance funds.  The sentence also included a requirement that Mr. Smith pay back millions of dollars to other investors allegedly victimized by his conduct.  The sentence was handed down by U.S. District Court Judge Illston following a guilty plea on one count in violation of 15 U.S.C. §§ 78j(b), 78ff; 17 C.F.R. § 240.10b-5.

Mr. Smith, 57, of Napa, California, was indicted by a federal Grand Jury on September 5, 2002 .  He was charged with one count of wire fraud, 17 counts of mail fraud, one count of securities fraud and six counts of money laundering.  The indictment also sought the forfeiture of Mr. Smith's Kentucky home. 

According to the plea agreement, Mr. Smith admitted that he defrauded Anita Walter of Florida by causing her to give him money for investments in stock and securities he promised to make that he said would earn 12 percent interest.  Mr. Smith later sent false account statements and stock certificates to Ms. Walter to make it appear that he had invested her money in a church consulting business he controlled, Donne Corporation. Mr. Smith admitted that when he sent the Donne stock certificates, Donne was losing money and he had already spent most of Ms. Walter's money for his own benefit. 

Judge Illston sentenced the Defendant to 37 months in federal prison and restitution in the amount of approximately $4.7 million, as well as a three year period of supervised release. Mr. Smith was also ordered to cooperate with the government in selling his Kentucky property so that the proceeds could be used to pay restitution and to file tax returns for all years he hasn't filed.  The defendant will begin serving the sentence on April 9, 2004.

The Court adopted the United States' recommendation that the Defendant receive  a sentence at the high end of the applicable Sentencing Guidelines range which was 30 to 37 months.  During the sentencing hearing, Judge Illston noted that the defendant had abused his position as church pastor to perpetrate his fraud. 

The prosecution is the result of a joint investigation by agents of the Federal Bureau of Investigation and the Securities and Exchange Commission.  Jeffrey L. Bornstein is the Assistant U.S. Attorney who prosecuted the case with the assistance of Lori Lucchetti, legal tech.