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Marchese v. Leverage Group

February 20, 2009


The opinion of the court was delivered by: Sifton, Senior Judge.


Plaintiffs Brian Marchese, Ruth Marchese, and Michael Marchese commenced an action against defendants the Leverage Group ("Leverage Group"), Leverage Option Management Co., Inc. ("Leverage Option Management"), Leverage Management, LLC ("Leverage Management"), North American Financial ("North American"), Philip Barry ("Barry"),*fn1 and Philip Barry, LLC ("Barry, LLC")*fn2 (collectively, "defendants") on November 26, 2008, after several other groups of plaintiffs filed similar actions.*fn3 These cases were consolidated for pretrial purposes on November 17, 2008. On December 24, 2008, all plaintiffs filed an Amended Consolidated Complaint, which included the following additional defendants: Saint Joseph's Development Corporation and HK Holdings, LLC.*fn4 The Amended Complaint included causes of action for violation of federal and New Jersey securities law, federal and New Jersey RICO, fraud, conversion, negligent misrepresentation, breach of fiduciary duty, breach of contract, breach of implied covenants of good faith and fair dealing, and unjust enrichment. On February 13, 2009, I ordered the Marchese plaintiffs' attorney relieved from this case, and granted Brian Marchese, Ruth Marchese, and Michael Marchese authorization to proceed pro se. Presently before this Court is a motion by pro se plaintiff Brian Marchese to attach certain assets belonging to the defendants.

For the reasons set forth in my prior ruling in Monteleone et al. v. Leverage Group et al., 2008 U.S. Dist. LEXIS 78983 (E.D.N.Y. October 7, 2008) ("Monteleone"), and the additional Mahala Pugatch (the "Barglow plaintiffs"); Gene Bianco, Anita Bianco (the "Bianco plaintiffs"); Carl Gambello, Carole Gambello, Adele Disarmato (the "Gambello plaintiffs"); Miriam Greenberger (the "Greenberger plaintiff"); Philip M. Bray, In-grid Noreiko-Bray, Label Service, Inc., Noray Charitable Remainder Unitrust (the "Bray plaintiffs); Amadeo Delmonaco, Piedad Delmonaco Michelle Delmonaco, Brandon Delmonaco, Nicole Delmonaco, Rosa Armetta, Karamchad Balkaran, Gino Citro, Steven Doyle, Keith Pennington, Joseph Fontana, Marco Fontana, Nunzio Fontana, David Breiner, Marc Kowalski, George Trivino, German Valdavia, Mazine Albert (the "Delmonaco plaintiffs"); Ann Marie Delia, William Delia, Robert Sweeney, Veronica Sweeney, Tara Sroka f/k/a/ Tara Sweeney, Ludvig Haugedal (the "Delia plaintiffs"); Brian Marchese, Ruth Marchese, and Michael Marchese (the "Marchese plaintiffs"). findings of fact and conclusions of law set forth below, the motion is granted.


Familiarity with the defendant parties and procedural history is assumed. The following facts are drawn from the Marchese plaintiffs' complaint, and are substantially similar to the facts of the Monteleone case. Defendants do not dispute any of the facts alleged by plaintiffs.

The Marchese plaintiffs are three individuals. Brian and Ruth Marchese live in Chicago, Illinois. Michael Marchese lives in Brooklyn, New York. Brian Marchese is the son of Ruth and Michael Marchese.

In mid November, 2007, plaintiffs Brian and Ruth Marchese were referred to Philip Barry to invest their money with him and his companies Leverage Group, Leverage Option Management, North American, and Barry, LLC. Compl. at ¶ 14. Defendant Barry represented to plaintiffs that they would receive a guaranteed return on their investment of 12.55%. Id. at ¶ 15. Defendant Barry further represented to plaintiffs that he, through his Leverage companies, engaged in the business of trading in options of publicly traded securities, which enabled the Leverage companies to earn substantial profits regardless of whether the underlying securities increased or decreased in value. Id. at ¶ 16. Barry stated that he had a consistent thirty-year track record of learning annual returns of 12.55%, that the Leverage companies had one of the most reliable and profitable earnings records in the investment management industry, that the Leverage companies would be the safest place for plaintiffs to invest their money, that all securities transactions were placed through insured brokers for investor protection, that an investment with the Leverage companies would not result in any loss of principal, that funds would be maintained in separate accounts for each investor, and that all funds invested would remain liquid and could be withdrawn at any time. Id. at ¶ 17. Plaintiffs allege that defendant knew these statements to be false when he made them. Id. at ¶ 19.

These representations were made orally and in writing to plaintiffs when they met with defendant Barry in his office in Brooklyn, New York in November, 2007. Id. at ¶ 18. These representations were subsequently made repeatedly to plaintiffs in telephone conversations that took place in December 2007 and January 2008, and were again received in writing periodically thereafter. Id.

In reliance on defendants' solicitations and statements, acting on defendant Barry's instructions, Brian and Ruth Marchese opened an investment account with defendants, with an initial deposit of $632,748. Id. at ¶ 20. Brian and Ruth Marchese received a letter/receipt from defendants dated January 15, 2008, which confirmed receipt of the initial deposit and guaranteed a yield of 12.55% through 2008. Id. at ¶ 21, Ex. A. Brian and Ruth Marchese thereafter received quarterly statements from defendants dated March 31, 2008, June 30, 2008, and September 30, 2008. Id. at ¶ 22, Ex. B. With accrued interest, the account statement dated September 30, 2008 reflected an account balance of $687,997.27. Id. In response to further solicitations by defendants, Brian and Ruth Marchese opened two additional investment accounts in January of 2008. The first of these additional accounts was opened with an initial deposit of $50,000, and had grown with interest to a balance of $54,654.39 as of September 30, 2008. Id. at ¶¶ 24, 25, Exs. C, D. The second of the additional accounts was opened with an initial deposit of $5000, which, after accrued interest and additional deposits, grew to a balance of $16,008.87 as of September 30, 2008. Id. at ¶¶ 26, 27, Exs. E, F.

On September 1, 2005, Michael Marchese made a deposit with defendants of $9,240, for which he received a letter receipt, which confirmed the guaranteed yield of 12.55% interest. Id. at ¶ 28, Ex. G. With additional deposits and interest, Michael Marchese's account contained $49,194.95 as of June 30, 2008. Id. at ¶ 29, Ex. H.

In February and May of 2008, multiple investors filed actions against defendants, asserting similar claims to those made by plaintiffs. Id. at ¶ 31. Despite being named in multiple lawsuits, defendant Barry failed to disclose the existence of the lawsuits to plaintiffs. Id. at ¶ 32. During numerous telephone conversations held between plaintiffs and defendant Barry from January to October of 2008, in response to plaintiffs' specific inquiries as to the status of their investments, defendant Barr made affirmative representations that the Leverage Group companies were operating successfully, that plaintiffs' investments were safe, and that the 12.55% guaranteed yield would continue. Id. at ¶ 33. Plaintiffs Brian, Ruth, and Michael Marchese relied on defendant Barry's misrepresentations to their detriment. Id. at ¶ 34. Plaintiffs did not learn of the other lawsuits until late October, 2008.

On October 21, 2008, plaintiffs Brian Marchese and Michael Marchese telephoned defendant Barry in order to withdraw all funds and to close their Leverage accounts. Id. at ¶ 36. Defendants have failed to refund or return the funds held for plaintiffs in their four accounts as requested. Id. at ¶ 36. The funds in these accounts comprised the bulk of plaintiffs' life savings. Id. at ¶ 39. According to the quarterly account statements received from defendants, as of September 30, 2008, the Leverage investment accounts opened by plaintiffs Brian and Ruth Marchese contained the following sums:

Account # 1-153-08: $687,997.27

Account # 12-311-07 ...

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