U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 21199 / September 8, 2009
Securities and Exchange Commission v. Philip G. Barry, Leverage Group, Leverage Option Management Co., Inc., and North American Financial Services, Civ. No. 09-CV-3860 (E.D.N.Y.)
SEC Charges New York-Based Money Manager in $40 Million Ponzi Scheme
The Securities and Exchange Commission today charged a Brooklyn money manager for running a $40 million Ponzi scheme in which he promised approximately 800 investors guaranteed high returns from safe, liquid investments, but instead spent their money on real estate, his pornography mail order business, and other interests.
The SEC alleges that Philip G. Barry and his firms Leverage Group, Leverage Option Management Co., Inc, and North American Financial Services defrauded investors, including senior citizens and retirees, by selling securities in Leverage investment funds. According to the Commission's complaint, Barry provided fake account statements to investors that recorded growing account balances and concealed that Barry had not been trading securities at all for several years. Neither Barry nor any of his related firms is registered with the SEC in any capacity.
The SEC alleges that Barry and his firms made numerous and varied misrepresentations to induce investors to invest in or to maintain their investments with the Leverage investment funds. For example, Barry falsely represented that he would use the investors' funds to trade in options or other securities. In addition, Barry falsely told investors that he would use a proven trading strategy to protect investors' principal and generate guaranteed returns of as much as 21 percent per year. As alleged in the complaint, these purportedly guaranteed rates of return were simply numbers arbitrarily selected by Barry. Barry also misrepresented to some investors that their investments in Leverage would be protected from loss by privately obtained insurance and/or by the Securities Investors Protection Corporation (SIPC). Barry told investors that they could liquidate their investment at any time and withdraw their funds, after providing Leverage with a few weeks notice.
The SEC's complaint, filed in the U.S. District Court for the Eastern District of New York, alleges that, by approximately 1999, Barry had ceased investing any of his investors' funds in options or other securities. Instead, the Commission alleges that Barry ran a Ponzi scheme in which he used incoming investor money to repay other existing investors and diverted the remaining investor funds for his own personal use. According to the Commission's complaint, Barry spent the money by purchasing real estate in his own name and those of other entities he controlled, paying expenses of a separate mail order business that sold pornographic materials, and supporting his lifestyle.
The SEC's complaint charges Barry, Leverage Group, Leverage Option Management Co., Inc, and North American Financial Services with violating Section 17(a) of the Securities Act of 1933, Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934, and Sections 206(1), 206(2), 206(4) and Rule 206(4)-8 of the Investment Advisers Act of 1940. The complaint seeks permanent injunctions, disgorgement of ill-gotten gains plus prejudgment interest, and financial penalties against all defendants.
Barry, Leverage Group, Leverage Option Management Co., Inc, and North American Financial Services, without admitting or denying the allegations, consented to the entry of a judgment that will grant the SEC the full relief that it seeks, but will defer the determination of the financial amounts of the settlement until a later date. The agreement to resolve the SEC's action is subject to approval by the court. Barry also has consented to the issuance of a Commission order barring him from association with an investment adviser.