That $40 Million Ponzi-For-Porn Scheme

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Post-Madoff, the SEC and DOJ are pledging better oversight, promising to spot more red flags, and earlier.

The proof so far? They’re not missing the porn.

Today, authorities announced charges against Brooklyn money manager Philip Barry and his related firms for defrauding some 800 investors of $40 million.

Among the side projects that the diverted funds went to was Barry Publications, a mail-order porn business. Barry’s Ponzi scheme money was used to purchase inventory and pay telephone, postage and other overhead expenses, according to the SEC complaint (below).

Porn wasn’t the only place investor cash disappeared to. Barry also bought real estate and used the money for “supporting his lifestyle,” doing little to no actual trading and providing fake account statements to cover his tracks. He repaid some existing investors, but pocketed most of the money,

SEC: “Barry was an unscrupulous and unregulated investment manager who lured victims with false promises of investment safety, lofty performance, and liquidity,” said George S. Canellos, Director of the SEC’s New York Regional Office. “While Barry guaranteed investors high returns and provided them with false account balances, he was secretly diverting the funds into unauthorised ventures and for his personal use.”

Barry has already declared bankruptcy. If convicted of securities fraud, he faces a maximum sentence of 20 years in prison.

Here’s the complaint:

Bay Ridge Investor Complaint

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