The Securities and Exchange Commission today charged a Brooklyn money manager with running a $40 million Ponzi scheme in which he allegedly promised investors that their money would be used for safe investments — but apparently spent the money on real estate and a mail order pornography business.
The SEC alleged that Philip G. Barry and several of his firms, The Leverage Group, Leverage Option Management Co. Inc. and North American Financial Services, defrauded some 800 investors, including senior citizens and retirees, when Mr. Barry claimed to sell securities in Leverage investment funds from January 1978 through February 2009.
He allegedly told potential clients that he would invest their funds in options or other securities that would protect their principal and generate returns of as much as 21% per year, the SEC said in its statement.
Mr. Barry reportedly ceased investing any of the investors’ funds in options or securities in 1999 and began running a Ponzi scheme — one in which the SEC claimed he used new investor money to repay other investors and divert funds for his personal use. This involved acquiring interests in at least 60 real estate deals but also helped support his mail order pornography business, Barry Publications, the SEC said in the statement.
According to the SEC, Mr. Barry’s statements indicated that he showed growing account balances, but in reality, he had not traded securities at all for several years.
Neither he nor any of his firms is registered with the SEC.
Without admitting or denying the allegations, Mr. Barry and the firms agreed to settle the SEC’s claims and consented to the entry of the judgment.
Subject to the approval of the court, the judgment orders them to pay disgorgement, prejudgment interest and a civil penalty in amounts to be determined at a later date, the SEC reported.
Mr. Barry also consented to an SEC order barring him from associating with an investment adviser.
In a separate action, the U.S. Attorney’s Office for the Eastern District of New York announced criminal charges against Mr. Barry.
He was not immediately available for comment.
The complaint was filed this morning in the U.S. District Court for the Eastern District of New York.