The SEC charged an investment adviser based in New York state with fraudulently offering and selling securities in two upstate New York real estate funds he managed.  Lloyd Barriger allegedly lied to investors in the Gaffken & Barriger Fund by promoting the relative safety and liquidity of fund investments;  he further noted that the fund generated a minimum return of 8% per year.  The fund’s actual performance did not justify these performance claims.

The SEC further alleges that Barriger defrauded investors in a second fund - Campus Capital Corp. - by using monies from this second fund to prop up the ailing first fund - and without disclosing his actions to Campus investors.  Barriger also caused Campus to engage in other transactions that personally benefited him.

“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.”  -- George Canellos, Director of the SEC's New York Regional Office. 

    Allegations in SEC's Complaint.   According to the SEC complaint filed in federal court in Manhattan, the G&B Fund raised approximately $20 million from January 1998 to March 2008, while Campus raised approximately $12 million from October 2001 to July 2008.  In March 2008, Barriger froze the G&B Fund and disclosed its true financial condition to investors.

Barriger allegedly misused G&B Fund assets by causing the fund to pay cash distributions of “Preferred Returns” to those investors who requested them.  He also caused the fund to redeem investors at overstated values reflecting the erroneous 8% per year returns, when the fund lacked the income to support those allocations and payments.

Barriger then caused Campus to inject nearly $2.5 million into the G&B Fund between August 2007 and April 2008, at a time the G&B Fund was in distress. He did not disclose this information to investors.

If the allegations are true, Barriger violated 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.

The SEC seeks civil penalties against Barriger and to disgorge him of ill-gotten gains, with prejudgment interest.   [SEC PR 11-111, 5/13/11]