The former manager of a collapsed mortgage hedge fund has been charged with defrauding investors of $12.6 million or more.
Lloyd Barriger's Gaffken & Barriger fund imploded amidst the financial crisis almost two years ago, when it defaulted on a $20 million credit line. Despite that, and despite a portfolio full of delinquent loans, Barriger continued to promise 8% returns, prosecutors allege.
The Securities and Exchange Commission, which sued Barriger on Friday, goes further, alleging that he used a second hedge fund, Campus Capital Corp., to raise money to keep Gaffken & Barriger afloat, without telling CCC executives.
"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," George Canellos, the SEC's New York chief, said. "He continued to solicit new investor funds based on the same misrepresentations up until the day before the fund collapsed."
Of the $20 million Monticello, N.Y.-based Gaffken & Barriger raised, $12.6 of it came "under false pretenses" between 2006 and 2008.
Barriger surrendered to authorities on Friday morning and was released on a $250,000 bond. He faces up to 40 years in prison.
Both the criminal and civil cases against Barriger cite a "co-conspirator," the firm's vice president. That person is likely Andrew McKean, who committed suicide in September 2008.