U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 19097 / February 23, 2005
United States of America v. Barry J. Goodman, (United States District Court for the District of Massachusetts Criminal No. 1:05-cr-10038-DPW)
Securities and Exchange Commission v. Barry J. Goodman et al., (United States District Court for the District of Massachusetts C.A. No. 01 CV 10163-JLT - Filed January 30, 2001)
INVESTMENT ADVISER CHARGED WITH FRAUD
The Securities and Exchange Commission ("Commission"), announced today that on February 17, 2005, the United States Attorney's Office in Boston, Massachusetts obtained an indictment against Barry J. Goodman, age 41, of North Andover, Massachusetts, charging him with three counts of investment adviser fraud, three counts of securities fraud, and five counts of wire fraud.
The Indictment alleges that between February and August 2000, Goodman obtained and then misappropriated $700,000 through two fraudulent investment schemes offered through his investment advisory business, New England Capital Advisory Group, LLC.
The first scheme involved a fictitious "initial public offering pool" (the "IPO Pool"). Goodman collected $500,000 from two investors after falsely representing that he would use their funds to obtain stock in initial public offerings underwritten by five investment banks during a specified period. Goodman falsely claimed that his firm would and had opened accounts at each of the five investment banks and that because of his special relationship with each investment bank, the accounts would receive allotments of shares in the IPOs the banks underwrote. Goodman told the investors that he would be able to sell the IPO shares immediately at a profit, with minimal risk. In fact, neither Goodman nor his firm established any such accounts with the investment banks, and when he received the funds from the investors, he did not invest the funds in IPOs. Instead, he used the funds to engage in day trading, to pay other clients, and to pay himself.
The second scheme involved a false "arbitrage" opportunity in the internet company, Lycos, Inc. ("Lycos"). In that scheme, Goodman falsely represented to one of the IPO Pool investors that he has created an investment strategy in which New England Capital would buy stock in Lycos and use options to minimize the risk that Lycos stock would decline in value. Goodman collected an additional $200,000 from that investor. Goodman, however, did not invest the money as he represented. He had no "arbitrage" strategy. He did not even buy Lycos stock with the investor's $200,000. Instead, as he had done with the IPO Pool funds, he used the funds to pay other clients and to pay himself.
If convicted, Goodman faces a maximum sentence of 10 years imprisonment and a $1 million fine on each securities fraud count; 5 years imprisonment and a $10,000 fine on each investment adviser fraud count; and 5 years imprisonment and a $250,000 fine on each wire fraud count. The details contained in the Indictment are allegations. The defendant is presumed innocent unless and until proven guilty beyond a reasonable doubt in a court of law.
On September 29, 2004, the District Court for the District of Massachusetts entered a final judgment against Goodman in the Commission's civil injunctive action finding that, in connection with the same investment scheme alleged in the indictment, he violated Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and Sections 206(1) and 206(2) of the Advisers Act and imposing a $220,000 civil penalty. The court had previously entered an order permanently enjoining Goodman from violating those provisions.
On October 13, 2004, the Commission issued an Order instituting Administrative Proceedings and Notice of Hearing pursuant to Section 203 (f) of the Investment Advisers Act of 1940 against Goodman. Subsequently, on November 19, 2004, the Commission obtained an order by default barring Goodman from association with an investment adviser.
For further information, please see Litigation Release No. 16875 (January 30, 2001); Investment Advisers Act of 1949 Release No. 2313 (October 13, 2004); and Investment Advisers Act of 1949 Release No. 2330 (November 19, 2004).