Securities Fraud Suit Filed Against Financial Advisor

Jack Humphrey, Regulatory journalist
May 14, 2011 /

A Monticello, N.Y.-based financial advisor has been charged with securities fraud by the Securities and Exchange Commission after defrauding investor money in two upstate New York real estate funds.

According to a complaint filed by the SEC before the federal court in Manhattan, Lloyd Barriger, fund manager of  Gaffken & Barriger Fund, fraudulently offered and sold securities to investors while allegedly using the money to save the ailing funds.

Like what had been hurled against Angelo Cuomo and George Garcy, co-founders of New York-based beverage and food carrier company E-Z Media Inc., who have been charged with securities fraud just recently, Barriger orchestrated other fraudulent transactions involving Campus Capital Corp. that benefited him, the SEC added.

The SEC alleged that the financial advisor had told investors that Gaffken & Barriger Fund was a safe and liquid investment and that it generated a minimum return of 8% annually, which did not justify the fund’s actual performance.

Instead, the SEC continued, Barriger used the amounts collected from the investors in Campus Capital Corp. to raise money for the ailing Gaffken & Barriger Fund, without the investors knowing it.

George Canellos, Director of the SEC’s New York Regional Office, said: “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. He continued to solicit new investor funds based on the same misrepresentations up until the day before the fund collapsed.”

From  January 1998 to March 2008, Gaffken & Barriger Fund was able to raise approximately $20 million while Campus raised almost $12 million from October 2001 to July 2008, the complaint said.

It was only in March 2008 that the financial advisor disclosed the true financial position of Gaffken & Barriger Fund to investors after he had frozen the funds.

The SEC claimed funds misuse committed by Barriger for causing Gaffken & Barriger Fund to pay cash distributions of “Preferred Returns” to investors who requested them.

Moreover, the financial advisor caused the fund to redeem investors at values that reflect the professed 8% per year return accumulated while Gaffken & Barriger Fund did not have sufficient revenue to support those allocations and payments.

Between August 2007 and April 2008, Barriger caused Campus to inject a total of nearly $2.5 million into Gaffken & Barriger Fund while it was ailing, the SEC claimed, adding that such move by Barriger was not known by the investors.

The SEC seeks the financial advisor to pay civil penalties and disgorgement of ill-gotten gains with prejudgment interest for violating “Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5 thereunder, and Sections 206(1) and 206(2) of the Investment Advisers Act of 1940.”


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