MORE INVESTMENT FUND FRAUD CASES

Investment fund frauds and Ponzi schemes seem to be the flavor of the day in the wake of Madoff and Stanford. In this short business week, the SEC has already announced two more of what seems like a never ending stream of these cases. One claimed fraud has been on-going longer than the Madoff scheme, while the other is relatively new. Both fleeced investors out of millions of dollars according to the Commission, using claims that were too good to be true.

First, the Commission filed SEC v. Barry, Civil Action No. 09-CV-3860 (E.D.N.Y. Filed Sept. 8, 2009). The U.S. Attorney’s Office announced the filing of a parallel criminal action, U.S. v. Barry, Case No. 9-0876 (E.D.N.Y. Filed Sept. 8, 2009). The SEC’s complaint claims that for a period of over thirty years defendant Philip Barry and his controlled entities “conned hundreds of investors into investing over $40 million” based on false representations.

Essentially, Mr. Barry claimed that he would use a proven trading strategy to protect investor’s principal and generate a guaranteed return rate of 12.55% per year. Investors were also told that they would be protected by the Securities Investors Protection Corporation. In fact, defendant Barry had not traded in securities in years. Rather, he diverted the funds to his own use while fabricating periodic statements sent to investors. The so-called investment fund was a Ponzi scheme the SEC says, an “illusion.” The complaint alleges violations of Securities Act Section 17(a), Exchange Act Section 10(b) and Advisers Act Sections 206(1), (2) and (4). See also Litig. Rel. No. 21199 (Sept. 8, 2009). The criminal complaint makes similar allegations. See also http://www.usdoj.gov/usao/nye/pr/2009/2009sep08.html

The Commission’s second action is SEC v. Hanson, Civil Action No. 3:09-CV-00336 (W.D.N.C. Filed Aug. 4, 2009). This case names as defendants Sidney Hanson, his wife and their controlled entities. The complaint alleges that over a three year period Mr. and Mrs. Hanson, through a sales force of 45 “consultants,” sold about $32.5 million of what they called “private loan agreements” to an estimated 500 investors. Those investors were told that the agreements would yield profits ranging from 8% to 30% from safe investments such as treasury bills, precious metals and foreign currency. In fact, some of the funds were put in very risky investments while others were used to pay the Hansons and their sales force. In a settlement announced this week, the defendants consented to the entry of a permanent injunction and certain ancillary relief. Monetary relief will be determined later. See also Litig. Rel. 21198 (Sept. 8, 2009).