There's A New Ponzi Schemer Under Arrest, And He Has A Mail Order Porn Business

The smaller versions of Madoff are still out there, convincing people to hand over their savings for foolproof investments that don’t actually exist, but every once in a while the authorities nab another one. This week it’s Philip G. Barry, a Brooklyn-based guy who operated out of my own neighborhood and happened to run a pornography business.

Barry, who is 52, was charged with securities fraud yesterday morning. He’s been accused of bilking “hundreds of investors, including many retirees, out of $40 million in what prosecutors called a ‘classic Ponzi scheme’ dating to the 1970s.”

From the New York Times:

Mr. Barry ran a group of small companies, known collectively as the Leverage Group, out of a small storefront office in Bay Ridge, where he grew up and where he still lives, and earned the trust of investors through his local ties and unassuming nature, his clients told investigators.

He eventually collected the $40 million from 800 investors by promising consistent returns of 12 percent or higher from stock options, according to the criminal complaint. Mr. Barry generated quarterly statements detailing fictitious trades and account balances, and promised investors they could withdraw money from their accounts whenever they chose, the complaint said.

In a separate case, the Securities and Exchange Commission filed civil fraud charges against Mr. Barry on Tuesday, echoing the criminal complaint and adding the contention that Mr. Barry had funneled investors’ money into a mail-order pornography business.

At some point, Barry stopped using the incoming funds to invest, and instead funneled the cash into real estate purchases and his porno venture. The NYT adds, “It was unknown whether the pornography business turned a profit.” His scheme continued for 30 years, and he seems to have only been uncovered after 2007 when the number of people asking for their money back outgrew the funds he had on hand.

The maximum sentence he can expect, if he’s found guilty, is 20 years.

If you’re shopping around for a money manager, remember these 5 tips on how to avoid falling into a Ponzi scheme.

“Man Accused of Running Ponzi Scheme in Brooklyn “ [New York Times]
“SEC busts Brooklyn money manager in $40M porno Ponzi scheme” [Investment News]
(Photo: swimparallel)