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Barriger pleads guilty, faces 65 years
Story by Dan Hust
MONTICELLO July 30, 2013 Former Sullivan County financial services provider Lloyd Barriger on Friday pleaded guilty to fraudulently duping investors out of nearly $13 million.
According to U.S. Attorney for the Southern District of New York Preet Bharara, Barriger was set to go to trial but instead pled guilty to securities fraud, mail fraud and two counts of conspiring to commit those frauds.
The 57-year-old Damascus, PA, resident faces up to 65 years in prison when sentenced this November 15.
Barriger was once president and principal shareholder of the Gaffken and Barriger Fund, primarily investing in real estate collateralized commercial mortgage loans and based out of his office in Bridgeville.
The fund, which was started in 1998, had been a successful operation for nearly a decade.
But from July 2006 until the fund’s freezing in March 2008, Barriger garnered $12.6 million from more than 70 investors through deceptive means, said Bharara.
“Barriger described the fund to prospective investors as a safe and liquid investment that paid a minimum return of eight percent per year, which Barriger referred to as the ‘Preferred Return’,” Bharara stated. “... The Preferred Return was supposed to be funded by the fund’s net income and thus subject to the fund’s actual performance. However, Barriger knew that the fund’s actual performance did not justify these performance claims.”
Among other trickery, Barriger hid the fact that the fund had suffered a $600,000 loss in 2005, that it had defaulted on its $20 million line of credit with a third-party lender in 2007, and that the fund was only paying that “preferred return” through investors’ own capital, not income.
Delinquencies in the fund’s loan portfolio grew to 34 percent by November 2007, causing the fund to undergo a “severe liquidity crunch and could not meet any substantial amount of withdrawal requests,” said Bharara.
Barriger only informed investors of these troubles beginning in May 2008, when he said investors’ capital accounts had fallen from $25.5 million to $15 million.
“Once again, belief in hedge funds by hopeful investors proved to be sadly misplaced,” Bharara stated. “In this case, the perpetrator was not in a sleek Manhattan building but rather in Sullivan County.
“Mr. Barriger’s guilty plea brings to an end his fraud. We hope that all our cases big and small exposing frauds in hedge funds will convince other fund operators to adhere to the duties of trust and honesty that they owe their investors.”
In the meantime, the federal government is seeking to recover from Barriger the full $12.6 million.
“We will seek to have the court enter both a forfeiture order and a restitution order,” confirmed U.S. Dept. of Justice spokesperson Herbert Hadad. “Should the court enter these orders, we will be able to recover from Barriger any direct or indirect proceeds of his securities fraud, or any other assets Barriger has or later obtains up to the value of the forfeiture and restitution orders.
“The ultimate goal is to restore to the victims as much of their fraud losses as possible.”
Lloyd Barriger offered a brief comment, saying of the verdict, “You can violate federal law even if you have good intentions.”