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Prosecutor: ‘Con man’ ran Ponzi scheme for three decades

A New York money manager ran a 30-year Ponzi scheme that defrauded hundreds of investors, a federal prosecutor told jurors at the start of his securities-fraud trial.

Philip Barry, 53, started the Leverage Group as a storefront operation in Brooklyn in 1978. He began accepting money in from investors, guaranteeing fictional annual profits, according to prosecutors in the office of U.S. Attorney Loretta Lynch in the Eastern District of New York. Instead, he used new investors’ money to pay earlier ones, prosecutors said.

“This is a case about a con man,” Assistant U.S. 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.”

In a separate action, the Securities and Exchange Commission said that Mr. Barry diverted some of the investor money to a mail-order pornography business. On Sept. 7, he sued the SEC for libel over the accusation.

Mr. Barry has run Barry Publications for 30 years, selling “vinyl LP records, music cassette tapes, compact discs and DVDs,” he said.

“”Your house will always go up in value,’” Michael Weil, a lawyer for Mr. Barry, told jurors in his opening statement. “Philip Barry bought into that same myth — that you can’t lose money in real estate.”

The first witness, Frank J. Monteleone, 47, a bond trader in Memphis, Tenn., for Cantor Fitzgerald LP, who grew up in Brooklyn, told jurors that he gave Mr. Barry $100,000 to invest, but was rebuffed when he asked for his money back.

Mr. Barry was charged in September 2009 and later indicted for securities fraud and mail fraud.

If convicted of the securities fraud, he faces up to 20 years in prison. Mr. Barry is free on $500,000 bail.

Mr. Barry is accused of luring more than 800 investors into his operation, 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, Mr. Barry would figure a “guaranteed” rate of return for the following year, ranging from 12.5% to 16%, prosecutors said. When investors tried to withdraw money from their accounts, checks would often be returned due to insufficient funds or, in some cases, Mr. Barry ignored their requests altogether, prosecutors said.

U.S. District Judge Raymond J. Dearie, presiding over the criminal trial, ruled that jurors can see a document called “Possibilities” in which Mr. Barry wrote that he was running a Ponzi scheme.

Mr. Barry tried to keep the document out of the case, arguing that he wrote it to gather his thoughts for investors who were beginning to sue him. He mistakenly handed it over to prosecutors, he said.

In August 2008, Mr. Barry went to federal prosecutors and told them that he was invested only in land rather than options, and that he couldn’t get approvals to develop the land, according to court papers. Mr. Barry also admitted that he used money from new investors to pay off old ones, according to prosecutors.

Mr. Dearie said that Mr. Barry can’t call to the witness stand a Monticello, N.Y., real estate broker to testify as an expert that Mr. Barry’s properties in Sullivan County, N.Y., about 100 miles north of Manhattan, would be worth $160 million if developed, showing he had no intent to defraud, according to court papers.

DEVELOPED LAND

At a Nov. 3 pretrial hearing, the broker, William Rieber, testified that the developed land would be worth about $225 million.

Prosecutors maintain that Mr. Barry bought the land for himself. The properties were auctioned off for $6.6 million last year, after he declared bankruptcy in 2008, according to the government.

In February 2009, after the scheme unraveled, Mr. Barry told his investors that the Leverage Group held only real estate, and not enough to cover account balances, according to prosecutors.

Mr. Barry also used investor money for personal expenses, including purchases at home improvement stores, restaurants and gas stations, the SEC said.