Porn Hedge Fund Founder Refutes Fraud Claims
April 8, 2009
Francis KoenigIs last year’s most provocative hedge fund launch just another fraud?

Sources close to AdultVest Inc., which manages the Priapus Investment Fund, an adult entertainment hedge and private equity fund, say that it is spending investor money on more than just investments, and that what investments there are don’t account for the returns it claims. A former investor says that founder Francis Koenig is looting the fund to pay for fine art, expensive wines, cars, personal trips and alimony. Meanwhile, a former employee tells FINalternatives “there was no capital being generated” during his time at the firm.

“There is almost no money left in the fund,” the investor, who said he was privy to some of AdultVest’s financials via a court order, alleges. “Koenig has an American Express black card through the company that he uses on partying, girls and high living. Most money is missing and iPorn.com is not worth what he says it is.”

“It just seems to me the whole time I was there that there was no capital being generated,” says the former employee, who left the firm last year because he felt uncomfortable working in an office shrouded with mystery. “And it seemed like money was being spent for things that didn’t need to be bought like cars, clothes and trips,” he adds.

Koenig calls those claims “absolutely ridiculous” and “slanderous.”

“There’s one investor in our fund who has put himself in a tough financial position and he’s nervous about all of his investments, and not just this one,” Koenig tells FINalternatives. “If it’s the guy I’m thinking of, he wanted to redeem capital form the fund, but the fund has deployed the money already. As far as where I spend my personal money, that’s completely separate from the fund. I do use an AmEx black card to do purchases but that is separate and apart from the fund. I take home a paycheck and I can spend that paycheck however I want to spend it.”

Both sources also question Beverly Hills, Calif.-based AdultVest’s returns.

The former employee alleges that Koenig spent investors’ money on buying domain names such as iporn.com and handjob.com, and shares in a strip club operator, VCG Holdings Corp., which has allegedly produced a 60% loss. Last June, AdultVest announced the acquisition of iporn.com and laid out plans to create an online adult entertainment platform.

“Between the two domains and VCG, I don’t know what else he spent investors’ money on. There were companies under the fund’s umbrella, but those were his companies that he started. I started putting two and two together and smelled a rat,” he says.

“Priapus’ only asset is iPorn.com, which cost about $250,000, yet $3 million is missing,’ the former investor says. The investor also alleges that a related firm, Adultvest Events, a conference company that seeks to bring investors and adult industry insiders together, did no business, and that all of its cash was stolen.

He also says he's filed a complaint with the Federal Bureau of Investigation and the Securities and Exchange Comission, which is taking the complaint "very seriously". The SEC declined to comment on its cases.

Koenig counters that iporn.com is “doing really well,” contrary to online reports that the company has closed its offices in Beverly Hills and that AdultVest went through some $3.5 million of investors money in a two-year period.

The AdultVest founder has been quoted saying that Priapus, which was named Institutional Investor’s best hedge fund launch of the year in 2008, gained 50% last year. But he says he was simply misquoted by the Atlantic Monthly.


“We have not reported a 50% gain to anyone, including our investors,” he claims. “The fund had stopped taking capital at the $50,000 per unit and it raised the price to $75,000 per unit based on the fund’s progress and the investments that it had made. So we increased the per unit buy-in price by 50%.”


However, Tom Johansmeyer, the Atlantic Monthly freelance reporter who interviewed Koenig, says he definitely did not misquote Koenig. "After all, I recorded the conversation with his knowledge and consent," he says.


Meanwhile, the former AdultVest employee paints a grim picture of life at the firm.


“Everyone got paid their salaries, but I was trying to figure out how all of these salaries were being paid, and at one point I was told that it was being individually funded,” the former employee says. “It was a small office and there was a lot of talk and I just didn’t feel like I needed to be around that.”

The former employee, who says there were about 11 employees when he worked at the firm, claims that some of the few remaining staff members, including a secretary and the firm’s Web site manager, have had their salaries halved because the firm is running out of money. He also says that they are only coming into the office once or twice a week.

“In my opinion, this guy raised money to start a company, to live a lifestyle he wasn’t accustomed to,” he says.

It all started here...

Let me tell you how this will all pan out...6 months to a year from now, we will all be intently looking over another one of Willie D's excellent pieces of financial entrail-reading (Like his JKP and Club Jenna investigations) and all chortling up our sleeves to the tune of 'How the fuck could these deluded fanbois be so fucking stupid?' after it all goes tits up and wipes out the life savings of a couple of hundred gullible schmucks.

Believe it...all that's missing is hiring Shy Love to be their spokesmodel, and they're all set.

DanG said it, Word!

Joe Weisenthal|Apr. 10, 2009, 8:38 AM|

http://www.businessinsider.com/porn-hedge-fund-accused-of-fraud-2009-4

Back in January, The Atlantic ran a story about AdultVest -- a hedge fund that claimed an improbable 50% return last year by investing in adult businesses.

We say improbable, because although there's the notion that sin sells in any economy, that storyline has been decidedly busted this time around. Gambling is down. Liquor is down. Porn is even down. Even online porn. So, we wondered, how did AdultVest manage a 50% return?

Here's what we said at the time:

We asked Koenig what, exactly, he's been investing in that's bucked the trend, but he was unwilling to go into much detail. He noted AdultVest bought some porn domain names, which have been appraised at higher values, but which haven't been sold. He also mentioned AdultVest's stake in iPorn -- a startup doing porn for the iPhone. But iPorn hasn't launched yet so any value is going to be difficult to determine.

Until proven otherwise, we're taking this claim of 50% gains with a grain of salt. We've been trained by the last year to be deeply skeptical of notional, mark-to-model values, and when you're talking about valuing assets like iPhone porn startups and unsold domain names, our skepticism ticks up another notch.

But perhaps our skepticism didn't go far enough.

Sources speaking to hedge fund newsletter FinAlternatives accuse AdultVest of being a downright fraud:

Sources close to AdultVest Inc., which manages the Priapus Investment Fund, an adult entertainment hedge and private equity fund, say that it is spending investor money on more than just investments, and that what investments there are don’t account for the returns it claims.

A former investor says that founder Francis Koenig is looting the fund to pay for fine art, expensive wines, cars, personal trips and alimony. Meanwhile, a former employee tells FINalternatives “there was no capital being generated” during his time at the firm.

“There is almost no money left in the fund,” the investor, who said he was privy to some of AdultVest’s financials via a court order, alleges. “Koenig has an American Express black card through the company that he uses on partying, girls and high living. Most money is missing and iPorn.com is not worth what he says it is.”

“It just seems to me the whole time I was there that there was no capital being generated,” says the former employee, who left the firm last year because he felt uncomfortable working in an office shrouded with mystery. “And it seemed like money was being spent for things that didn’t need to be bought like cars, clothes and trips,” he adds.

The fund's manager and founder Francis Koenig vociferously denies the accusation, calling it "slanderous." He chalks the rumors up to a single, unnamed investor who wants to take his money out of the fund.

FinAlternative's sources, meanwhile, claim the fraud has been reported to the FBI and the SEC, so we'll be on the watch for developments.

Francis Koenig: Your Last Chance to Own a Piece of iPorn

--on the web

Francis Koenig has been sending out the following e-mal: Here's a brief update on the www.iPorn.com investment.

Today we released the second beta of www.iPorn.com to the public, and it looks GREAT!!! Please visit the website to see our progress and be sure to register and complete your user profile..it's free and only takes seconds.

Traffic on the website has grown to new levels. iPorn Mobile alone now has well over 12,000 signups since we launched the mobile registration on March
12, even though it is currently only an early alpha release, with a much improved version scheduled to launch later this month.

After we make the improvements to iPorn Mobile, we intend to begin charging a recurring monthly fee for our premium mobile service, which will be introduced in May/June. We initially had not expected to begin charging a fee this soon, however our traffic has picked up more quickly than anticipated showing the strong pent-up demand, particularly from iPhone / iPOD users all before we start our marketing and promotion campaigns. iPorn is also beginning to generate advertising revenue this month.

If you have any interest in this investment, please let us know immediately! This is your last chance to own a piece of www.iPorn.com.

We will certainly not require any further funding if our traffic continues to grow the way it has over the past few months.