Brooklyn Money Manager Called a "Con Man" in Securities Fraud Trial

Brooklyn, NYThere are various kinds of stockbroker fraud. There are the Ponzi schemes of the magnitude of a Madoff, where billions were invested in what turned out to be thin air. At the other end of the scale are stockbrokers who urge their clients to invest in products that "can't lose," that turn out to be anything but a sure thing.

And in between, there are people like Philip Barry, a Brooklyn resident who is being tried for securities fraud. He is accused of accepting money from investors in exchange for guaranteed rates of return. He then allegedly used the proceeds from new investors to pay off his original clients. Bloomberg News reported on November 9th that hundreds of investors were duped.

The accused worked out of a storefront in the Bay Ridge section of Brooklyn and ran Leverage Group, by which he lured in excess of 800 investors attracted by his promised "guaranteed" rate of return from investing in stock options.

However, it appeared as if Barry was actually running a Ponzi scheme, in addition to purchasing land that he later planned to develop. Various estimates have suggested that the defendant's former properties, located about 100 miles north of Manhattan, could be worth anywhere from $160 million to $225 million once developed. However, any testimony pertaining to the developed value of the land was deemed not admissible in court.

The accused allegedly did not tell his investors that he was investing in land, but rather in stocks. Thus he is accused of committing stock fraud as well as running a Ponzi scheme, to which he admitted by mistakenly submitting to prosecutors a document entitled "Possibilities," in which Barry referenced his Ponzi scheme. The accused said he had written the document simply to gather his thoughts after some of his investors had launched legal action against him.

In addition to the Ponzi scheme, Barry also ran Barry Publications, dealing in vinyl records, music cassettes, compact discs and DVDs. However, the US Securities and Exchange Commission (SEC) accused Barry of diverting investor funds to a mail-order pornography business—an accusation Barry denied. He countered by suing the SEC for libel.

Bloomberg reported that Barry declared bankruptcy in 2008. The following year his land assets were sold at auction for $6.6 million. However, Barry's assets paled in comparison to a closing balance of more than $45 million, a figure that far exceeded assets.

He is also accused of using investor money for personal use.

At trial, one bond trader described giving Barry $100,000 to invest, telling the court that Barry refused to return any of the money. It is assumed that the duped bond trader would be in no position to recover his losses through stock fraud arbitration, given that Barry was not a stockbroker. Thus, stockbroker fraud was not involved. However, "this is a case about a con man," Assistant US Attorney Jeffrey A. Goldberg told jurors in his opening statement. "Philip Barry repeatedly lied to his clients to get their money and now their money is gone."