Last week Lloyd Barriger was sentenced to five and a half years in prision for his illegal actions while managing a real estate investment fund here in Sullivan County.
I almost didn’t write this post. It has been covered and hashed out ad nauseam. But after reading the news reports over the last few days, I felt I needed to weigh in on this.
Lloyd Barriger ran Gaffken and Barriger LLC from 1998 until its untimely demise in 2008. The fund started out trading nano-cap stocks for a small number of clients, but like so many others, saw the potential of a real estate market on the rise, so around 2000, they changed their mission statement to “Invest, hold, and trade in real estate, real estate loans, real estate securities, other securities and other financial instruments and rights thereto.” Basically the funds strategy was to lend money to builders and real estate developers using high interest, short term bridge loans.
And at first, as the market continued to improve, things went swimmingly for Mr. Barriger and associates. Eight percent return on all investments became the mantra and were “guaranteed.” More and more people heard about this and kept forking over their hard earned money. The fund grew, and seemed solid.
Well, around the end of 2005, things began to go south. Many of the risky developers that had taken out loans with the fund, began to default. Suddenly they could not pay the promised eight percent. And so began the slippery slope of robbing Peter to pay Paul. New investor money was used to keep the illusion of the fund afloat. A classic Ponzi scheme.
By March of 2008, the coffers were empty, and the ruse could no longer continue. The fund was frozen, and people realized they had lost everything.
Maria Grimaldi, a 71 year old retiree lost her life savings in the fund. (She had contributed later on when Barriger knew it was a house of cards, but he took her money anyway.) She was forced to return to work, according to the Times Herald Record. I personally know another victim who was also forced to unretire once his entire nest egg disappeared into the Barriger abyss.
Mr. Barriger spoke in court, apologizing for his actions, saying he never intended for this to happen, and he was not prepared to face the challenges of running the fund.
In fact, a few of his supporters spoke up for him. According to the Times Herald Record, Ed Sykes Town of Delaware supervisor told the judge, “The real reason for Barriger’s downfall was the real estate crash.”
Now this is just a quote in a newspaper. I did not hear exactly what Mr. Sykes said, however if this quote is true, I find it absurd. Of course we all can do well when the sun is shining, and the real estate market is going up 10% a year. The real mark of a man is what you do when things are tough. And Lloyd Barriger made a conscious decision to defraud and lie. And he did not do it for a noble reason. He did it for greed. His downfall was not the real estate crash. His downfall was his lack of character.
Scores of people were affected by the real estate market crash. Thousands of homes were lost, fortunes disappeared, and lives were changed forever. And most of these people took the hit on the chin, dusted themselves off and kept trying. They didn’t steal from the elderly. To somehow make the excuse that suddenly he was in over his head, and the turn of the market is to blame is ludicrous.
“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. Securities and Exchange Commission vs. Lloyd V. Barriger.
Personally I think five and a half years is light. Bernie Madoff got 150 years. How is what Barriger did any less egregious? because there were fewer victims? Tell that to Ms. Grimaldi who in five years (when Barriger gets out of prison) will be 76 and will still have to go to work every day.