Judge dismisses Barriger suit

Owens’ lawsuit regarding $2 million still viable

By FRITZ MAYER

WHITE PLAINS, NY — A federal judge said local stockbroker Lloyd Barriger acted within the law in operating a fund that led to the loss of hundreds of thousands of dollars for five area residents. On November 19, district judge P. Kevin Castel dismissed the lawsuit brought by the residents. Their lawyer did not return calls seeking comment about whether the decision would be appealed.

The residents, who had invested more than $600,000 in the fund, filed suit against Lloyd Barriger and Gaffkin & Barriger Fund in November 2008, alleging that Barriger made misleading statements to the investors, and whose investments, according to the complaint, are now worthless.

The court papers indicate that the fund was started in 1998 and initially invested in relatively safe equities. But, in 2005, the fund switched to a strategy that involved much more risky real estate investments. The court document reads, “As part of this new approach, the fund engaged in a strategy that it described as asset-based lending: it anticipated borrower defaults, and then hoped to recoup interest and principal while the borrower underwent foreclosure and bankruptcy.”

For a while, the strategy worked very well. Then, the real estate market collapsed and, by the spring of 2008, the investments were frozen and payments to investors were halted. The plaintiffs sued on the grounds that Barriger made statements that indicated the investment strategy was safe, that investors could take money out of the fund at any time.

But those statements were not enough to make the case. Castel said that plaintiffs “must do more than say that the statements were false and misleading; they must demonstrate with specificity why and how that is so,” which he said the plaintiffs did not do.

Additionally, the judge said that various letters sent to the investors gave them sufficient warning that the investments were, in fact, risky. The judge wrote, “By and large, it is fair to characterize Barriger’s letters to fund investors as highly conversational and interspersed with enthusiastic statements about the fund’s future prospects. His mailings on behalf of the fund, however, also apprised investors of the risks that attended its change in investment strategies, including the assertion that leveraging the fund could ‘sabotage the return in tough times.”’

Barriger released a statement on December 4, saying, “The court’s decision vindicates the fund’s position that it and fund management fully and adequately disclosed the risks and material terms of investing in the Gaffken & Barriger Fund to prospective investors. We remain disappointed that a small group of unhappy investors have imposed the burden and costs of defense of such unfounded claims on other investors in the fund. The fund, like many participants in the real estate sector, has been hit hard by the economic downturn, and we are continuing to work hard to maximize the fund values for the benefit of the fund’s investors and creditors.”

For Barriger, however, a more difficult lawsuit remains to be settled. It was filed by Narrowsburg resident Frank Owens in October 2008. Owens met with Barriger in September 2007, just months before the fund collapsed and handed over $2 million to him and said he was seeking a “safe, low-risk investment.”

The judge wrote, “In Owens, the plaintiff invested in the fund based solely on oral representations made by Barriger and Andrew McKean, including unambiguous guarantees that he would receive an eight percent return on investment and that the fund was equivalent to a money-market account.”

Because of these verbal guarantees, coupled with the fact that Owens alleges that he was never shown any of the relevant documents regarding the fund, the judge declined to dismiss that lawsuit.