SEC Charges New York-Based Money Manager in $40 Million Ponzi Scheme
FOR IMMEDIATE RELEASE
Washington, D.C., September 8, 2009 — 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.
"Barry was an unscrupulous and unregulated investment manager who lured victims with false promises of investment safety, lofty performance, and liquidity," said George S. Canellos, Director of the SEC's New York Regional Office. "While Barry guaranteed investors high returns and provided them with false account balances, he was secretly diverting the funds into unauthorized ventures and for his personal use."
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.
Without admitting or denying the allegations in the complaint, Barry, Leverage Group, Leverage Option Management Co., Inc, and North American Financial Services agreed to settle the SEC's claims against them and consented to the entry of a judgment, subject to approval by the court, that enjoins them from future violations of the above provisions of the securities laws and orders them to pay disgorgement, prejudgment interest and a civil penalty, the amounts of which will be determined at a later date. Barry also has consented to the issuance of a Commission order barring him from association with an investment adviser.
Separately, the U.S. Attorney's Office for the Eastern District of New York (USAO) today announced criminal charges against Barry for the same misconduct alleged in the SEC's complaint.
The Commission acknowledges the assistance and cooperation of the USAO and the Federal Bureau of Investigation in this matter.
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Associate Director, SEC's New York Regional Office
Ken C. Joseph
Assistant Director, SEC's New York Regional Office