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Chief Executive Officer of New York Investment Firm Pleads Guilty to Securities Fraud

October 13, 2009

Guilty Plea to Indictment Comes One Week Before Trial

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, pled guilty this afternoon to conducting a long-running securities fraud. The proceedings were held before United States District Judge Arthur D. Spatt at the federal courthouse in Central Islip, New York.

As part of his guilty plea, Motz admitted that he conducted a fraudulent trade allocation scheme, known as “cherry-picking,” from approximately November 2000 through June 2005. The scheme generated approximately $2.2 million in risk-free profits for MFA’s proprietary trading account and two hedge fund trading accounts controlled by Motz, at the expense of MFA discretionary clients.

Typically, Motz submitted large stock “buy” orders to the MFA trading desk in the morning, without specifying the accounts to which those purchases should be allocated. Later in the day – often shortly before the close of the market – Motz decided whether to sell the position and book the profit in either MFA’s proprietary trading account or the two hedge fund accounts, or to allocate the securities that depreciated in value during the day to MFA’s discretionary client accounts. While Motz carried out his scheme, MFA’s discretionary account clients were falsely assured that, to the extent MFA engaged in proprietary trading on the firm’s behalf, the firm’s account would not be favored over the clients’ accounts.

When sentenced, Motz faces a maximum statutory sentence of 25 years’ imprisonment.

The government’s case is being prosecuted by Assistant United States Attorneys Roger Burlingame and William Schaeffer.

The Defendant:

Age: 67

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