Another Day, Another Ponzi Scheme

Earlier this week a Brooklyn based money manager was charged with operating a 30 year Ponzi scheme that involved more than $40 million of his clients’ money.  Phillip Barry, of Bay Ridge, began accepting money from clients in 1978 through a group of companies called Leverage Group, telling them that he was investing only in stock options and sending the clients falsified earning statements claiming returns ranging from 12.5% to 21%.  This was never true, and eventually he stopped investing in stock options altogether.  His actual investments were mostly in failed real estate endeavors and his own porn business which sold X-rated DVDs by mail and on Ebay.  Doomed by the recession and the collapse of the real estate market, Mr. Barry filed for bankruptcy protection in October of last year.  As part of the bankruptcy proceedings, Mr. Barry admitted that most of the $10 million that he had received since 2003 had been used to pay earlier investors.  Mr. Barry also estimated that his liability to investors was close to $60 million with interest.  Early estimates of the value of the more than 60 properties that were purchased by Mr. Barry are around $10 million.  However, this amount will probably be far less as Mr. Barry does not hold clear title to all of the properties and some of them are in foreclosure.

This is a case where investors will probably never get any more money back from their investor than the “dividend” payments that they have already received.  What money he didn’t blow on his lifestyle and bad investments, he probably had to funnel back to his clients to keep the scheme going.  By the time the various lawyers, trustees and receivers are paid for their work on the case from what little is recovered from the sale of Mr. Barry’s properties, it is unlikely that there will be much if anything left to split among the investors. 

While sad, this case is another reminder of the need for proper due diligence before investing large sums of money and the dangers of placing all of your investments with one firm.

Another Day, Another Ponzi Scheme

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