SEC: New York mortgage fund adviser defrauded investors

A Pennsylvania investment adviser defrauded several hundred investors with sales of at least $32 million of securities in two New York-based real estate funds that he managed, regulators alleged in a complaint filed today. From as early as January 1998 through March 2008, Lloyd V. Barriger told investors in his Gaffken & Barriger Fund that it was a “relatively safe and liquid investment” that would pay at least 8% a year, the Securities and Exchange Commission said in its complaint filed in the U.S. District Court for the Southern District of New York. Mr. Barriger misused the fund's assets, issued false and misleading statements that inflated account balances and failed to keep records showing the investors were “accredited,” or legally allowed to invest in the securities, the SEC said. The Gaffken & Barriger Fund's financial condition deteriorated beginning in early 2007 and became worse through the year as the mortgage loans in the fund's investment portfolio began to quickly deteriorate, the SEC said. The fund's operating cash shortfall reached more than $11 million by March 2008, when Mr. Barriger froze the fund. “In the midst of the credit crisis, Barriger chose to lie about the solvency and liquidity of his fund rather than admit the somber truth of a collapsing business,” said George Canellos, director of the SEC's New York Regional Office. Mr. Barriger, who lived in Damascus, Penn. but operated his business in Monticello, New York, solicited new investment based on misrepresentations right up until the day before the fund collapsed, Mr. Canellos said. Mr. Barriger also failed to tell investors in the other real estate fund he managed, Campus Capital Corp., that at least $2.5 million of the $12 million raised for Campus Capital was diverted to “prop up” the Gaffken & Barriger Fund, the commission said. An attorney for Mr. Barriger declined comment through an email. The SEC is seeking civil penalties and a return of ill-gotten profits and interest.