Investment Manager Convicted of Securities Fraud and Mail Fraud for Operating 30-year Ponzi Scheme
Brooklyn-Based Defendant Induced Hundreds of Individuals Throughout the United States to Invest More than $40 Million
A federal jury in Brooklyn, New York, returned guilty verdicts this afternoon on all counts of a 34-count indictment charging Philip Barry, an investment manager based in Bay Ridge, New York, for operating a long-standing and large-scale Ponzi scheme. Specifically, the defendant was convicted of one count of securities fraud and 33 counts of mail fraud. When sentenced by United States District Judge Raymond J. Dearie, Barry faces a maximum sentence of 20 years’ imprisonment for securities fraud, and 20 years’ imprisonment for each count of mail fraud.
The verdict was announced by Loretta E. Lynch, United States Attorney for the Eastern District of New York. The case was investigated by the Federal Bureau of Investigation, New York Field Office.
Barry began accepting money in the late 1970s from individuals seeking a return on investment, and he eventually called his business “the Leverage Group.” Barry told potential investors that the Leverage Group invested in stock options. To induce investments and discourage withdrawals, Barry, among other things, guaranteed specified positive rates of return, issued account statements that showed growing account balances, represented that investing in the Leverage Group was safe, and promised that withdrawals could be made easily.
The evidence at trial established that Barry actually was running a Ponzi scheme, paying returns to Leverage Group investors not from any profits earned on investments, but rather from existing investors’ deposits or money paid by new investors. Barry never produced or earned the rates of return that he advertised and cited in clients’ account statements. Rather, the positive rates of return were simply pre-determined interest rates made up by Barry.
Barry also lied to investors about core aspects of the Leverage Group. For example, although Barry told most investors that the Leverage Group invested only in stock options, in reality he did not limit the Leverage Group’s investments to stock options. Barry eventually stopped investing in stock options altogether and instead used deposits primarily to pay returns to existing investors. Barry also used investor money to pay personal expenses, fund a side business that he owned, purchase real estate, and for other improper purposes.
In addition, Barry falsely assured investors about their risk of loss. For example, he made misleading statements regarding whether his clients’ individual investment accounts were covered by the Securities Investors Protection Corporation (SIPC), which is a federally mandated non-profit corporation that protects securities investors from financial harm if a brokerage firm fails. The Leverage Group, however, was never covered by SIPC.
The evidence also established that Barry routinely broke his promise to investors that they could easily withdraw money from their accounts by first discouraging such withdrawal requests, and if that failed, delaying payment by offering a variety of excuses. Even in those instances when Barry actually issued withdrawal checks, they would often be returned due to insufficient funds. In some cases, Barry simply ignored investors’ withdrawal requests altogether.
All told, approximately 800 individuals invested a total of more than $40 million in the Leverage Group. Although some investors succeeded over the years in making full or partial withdrawals, particularly before the Ponzi scheme began to unravel, numerous other investors sustained substantial losses. In bankruptcy testimony given by Barry in December 2008, he estimated that he owed his investors $60 million.
In announcing the guilty verdicts, United States Attorney Lynch expressed her grateful appreciation to the Federal Bureau of Investigation, the agency responsible for leading the government’s investigation, and thanked United States Securities & Exchange Commission for its assistance.
The government’s case is being prosecuted by Assistant United States Attorneys Jeffrey A. Goldberg and John P. Nowak.
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