Florida Criminal Defense Lawyer Blog
A money manager from Brooklyn, New York, was found guilty of running a $45 million Ponzi scheme that defrauded hundreds of investors.
Philip Barry, 53, a resident of the Bay Ridge section of Brooklyn, began accepting money in 1978 from investors, guaranteeing fictional annual profits, according to prosecutors in the office of U.S. Attorney Loretta Lynch in Brooklyn. Instead, he used new investors’ money to pay earlier ones, prosecutors said.
“The defendant lied to clients to get their money, lied to clients about what he would do with their money and lied to clients about getting their money back,” Assistant U.S. Attorney John P. Nowak told jurors in his closing argument today.
The federal jury, which deliberated for less than four hours, convicted Barry today of all the counts he faced — one of securities fraud and 33 of mail fraud. He faces up to 20 years in prison on the securities-fraud conviction alone.
The criminal trial began Nov. 8. In a separate action, the U.S. Securities and Exchange Commission said Barry diverted some of the investor money to a mail-order pornography business. On Sept. 7, Barry sued the SEC for libel over the accusation. He has run Barry Publications for 30 years, selling “vinyl LP records, music cassette tapes, compact discs and DVDs,” he said.
No Bail
Barry was taken into custody. His lawyer, Lisa Hoyes, asked that she be allowed to put together a bail package for him. U.S. District Judge Raymond J. Dearie, who presided over the trial, said bail couldn’t be considered today.
“For now the defendant is remanded,” Dearie said.
Hoyes didn’t immediately return a call seeking comment on the verdict.
Barry, who worked out of a Bay Ridge storefront, was accused of luring more than 800 investors into his Leverage Group, which claimed to be investing in stock options. His reported ending balance of more than $45 million far exceeded assets actually held, producing “substantial losses” for many investors, according to prosecutors.
Each December, Barry would figure a “guaranteed” rate of return for the following year, ranging from 12.55 percent to 16 percent, prosecutors said. When investors tried to withdraw money from their accounts, checks would often be returned due to insufficient funds or, in some cases, Barry ignored their requests altogether, prosecutors said.
Barry may have had “unorthodox” business practices but his investors were looking for outsized returns, Hoyes said in her closing argument.
Stocks, Options
One witness at the trial, Frank J. Monteleone, a bond trader at Cantor Fitzgerald LP in Memphis, Tennessee, who grew up in Bay Ridge, told jurors he gave Barry $100,000 to invest and Barry refused to return any money.
Nowak said in his closing argument that in 2002, when Barry first met with Monteleone and his wife, he told them he invested in options. In testimony in his bankruptcy case in 2009, Barry admitted that by 2001 he stopped investing in any stocks or options.
In August 2008, Barry went to federal prosecutors and told them he was invested only in land rather than options and that he couldn’t get approvals to develop the land, according to court papers. He also admitted he used money from new investors to pay off old ones, according to prosecutors.
“He knew he committed a crime,” Nowak said in his closing argument.
Boxes of Documents
Hoyes said Barry’s approaching prosecutors, his allowing them to go through “boxes and boxes” of his documents, his never fleeing the country and his “humble lifestyle” showed that he wasn’t a con man.
Dearie ruled before the trial began that Barry couldn’t call to the witness stand a Monticello, New York, real-estate broker to testify as an expert that Barry’s properties in Sullivan County, New York, about 100 miles north of Manhattan, would be worth $160 million if developed, showing he had no intent to defraud, according to court papers.
At a Nov. 3 pre-trial hearing, the broker, William Rieber, testified that the developed land would be worth about $225 million.
“He was invested in very valuable land in Sullivan County for the benefit of the investors,” Hoyes said in her closing argument.
Prosecutors say Barry bought the land for himself. The properties were auctioned off for $6.6 million in 2009, after he declared bankruptcy the previous year, according to the government.
Personal Expenses
In February 2009, after the scheme unraveled, Barry told his investors that the Leverage Group only held real estate, and not enough to cover account balances, according to prosecutors.
Barry also used investor money for personal expenses, including at home-improvement stores, restaurants and gas stations, the SEC said.
The criminal case is U.S. v. Barry, 09-cr-0833, the SEC case is Securities and Exchange Commission v. Barry, 09-cv-3860, and Barry’s suit against the SEC is Barry v. United States Securities and Exchange Commission, 10-cv-4071, U.S. District Court, Eastern District of New York (Brooklyn).