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Alleged Ponzi Scheme / Porno Business Operator Arrested

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By Caleb Groos on September 09, 2009 12:52 PM

Philip Barry, a Brooklyn "money manager," has been arrested and charged with orchestrating a 30 year Ponzi scheme. Another mini-Madoff whose long-run operation collapsed when too many investors needed their money back, Barry is alleged to have parted about 800 investors from about 40 million of their dollars. Rather than investing their money, he allegedly used it to fund real estate purchases, a mail order pornography business and his lifestyle.

The number of decades long investment schemes that unraveled in the past year might underline how intensely our economy has been shaken. Even if some of it was dressed up in language like "split strike conversion strategy," old school flimflammery simple enough to survive for decades has been forced into light. Taking money from new investors to pay off old investors whose money you never actually invested (at least in the sense that they understood the word "invest") can't keep going when everyone calls in for their money.

And allegedly, this fate has now befallen Philip Barry. According to the U.S. Attorney's Office, Barry began accepting investments in the 1970's. Through the "Leverage Group," Barry purportedly promised large returns and made false assurances of investment protection, but unfortunately did not invest his clients' money as planned. Instead, the DOJ alleges that he began using the funds for personal investments, such as real estate, his mail order pornography business and his lifestyle.

As described in an SEC press release, the account statements Barry issued to clients showed positive returns based on numbers arbitrarily chosen by Barry. Payouts came from money invested by other clients.

The DOJ estimates that though many of the approximately 800 investors got some portion of their money back, Leverage Group account statements indicate a total of $45 million in current balances (but who knows what that number really means).

Barry faces a maximum 20 years in prison.

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