Two hedge funds were accused of participating in a sex-trafficking conspiracy by providing financing for Pornhub and similar websites.
<-bsp-bb-link state=”{“bbHref”:”bbg://securities/0217593D%20US%20Equity”,”_id”:”0000018f-ac63-df02-a7ef-ed73b5bc0000″,”_type”:”0000016b-944a-dc2b-ab6b-d57ba1cc0000″}”>Redwood Capital Management-bsp-bb-link> and <-bsp-bb-link state=”{“bbHref”:”bbg://securities/8283270Z%20US%20Equity”,”_id”:”0000018f-ac63-df02-a7ef-ed73b5bc0001″,”_type”:”0000016b-944a-dc2b-ab6b-d57ba1cc0000″}”>Colbeck Capital Management-bsp-bb-link> were added Thursday as defendants to a three-year-old suit against <-bsp-bb-link state=”{“bbHref”:”bbg://securities/1281327D%20LX%20Equity”,”_id”:”0000018f-ac63-df02-a7ef-ed73b5bc0002″,”_type”:”0000016b-944a-dc2b-ab6b-d57ba1cc0000″}”>MindGeek-bsp-bb-link>, the company that operates sites including Pornhub, Peeperz, YouPorn and Brazzers. Plaintiff Serena Fleites alleges that, at age 13, her boyfriend induced her to appear in videos that later appeared on Pornhub without her consent.
According to the suit in Los Angeles federal court, Redwood and Colbeck provided hundreds of millions of dollars in financing to the individuals who acquired and built MindGeek. Before providing that financing, the funds performed several rounds of due diligence during which the risks of “illegal material” involving “minors” were raised, Fleites alleges.
“During the decade of such financing, they were fully aware that MindGeek would be using the financing to monetize child pornography and other nonconsensual content,” the suit claims.
Spokespeople for both funds said they had no control over MindGeek, called Fleites’ claims “baseless,” and said they expected them to be dismissed.
Deferred Prosecution
“The injuries alleged to have occurred to the plaintiff in this lawsuit are heartbreaking, but as one of dozens of former lenders to MindGeek, we had absolutely no control over the company’s management or operations,” Redwood’s spokesman said. “Shortly after learning of the deeply troubling allegations against the company in 2020, we fully divested our position.”
A spokesman for Colbeck said it “was a lender to the company more than a decade ago, alongside nearly 100 other financial institutions, including money center banks and asset managers.”
Fleites featured prominently in a 2020 New York Times piece highlighting the prevalence of underage content on Pornhub. MindGeek responded by erasing more than 10 million videos, or around 80% of Pornhub’s content.
Last year, MindGeek was acquired by a Canadian private equity firm called <-bsp-bb-link state=”{“bbHref”:”bbg://securities/2230445D%20CN%20Equity”,”_id”:”0000018f-ac63-df02-a7ef-ed73b5be0000″,”_type”:”0000016b-944a-dc2b-ab6b-d57ba1cc0000″}”>Ethical Capital Partners-bsp-bb-link> and rebranded as Aylo. It entered into a deferred prosecution agreement with Brooklyn, New York, federal prosecutors last year in which it agreed to pay damages to women who appeared on its sites without consent.
Goldman Alums
The funds were both founded by
Redwood has around $9 billion under management. Colbeck has more than $800 million, according to an April Securities and Exchange Commission filing.
Some allegations about the financings were partially redacted in Thursday’s filing. According to the suit, Colbeck made a loan to MindGeek in 2011, with an effective interest rate above 20%. Redwood subsequently joined the financing effort.
Fleites claims that the funds’ due diligence included reports from security and consulting firms flagging the risks of underage content. According to the suit, the financing arrangement provided the funds with regular detailed reports on MindGeek’s business performance and legal risks, including when child pornography and nonconsensual concerns were raised by the press or government agencies.
“Nevertheless, they provided and continued to provide MindGeek hundreds of millions of dollars in financing because they too had a singular focus on profits they would earn from the exorbitant interest rates and other fees they could demand because others were unwilling to finance this illicit business,” Fleites says.
The case is Fleites v. MindGeek, 2:21-cv-04920, US District Court, Central District of California (Los Angeles).
(Corrects to remove reference to additional Colbeck assets in 11th paragraph.)
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<-bsp-person state=”{“_id”:”0000018f-ac63-df02-a7ef-ed73b5c60000″,”_type”:”00000160-6f41-dae1-adf0-6ff519590003″}”>Greg Farrell-bsp-person> in New York at gregfarrell@bloomberg.net
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<-bsp-person state=”{“_id”:”0000018f-ac63-df02-a7ef-ed73b5ca0000″,”_type”:”00000160-6f41-dae1-adf0-6ff519590003″}”>Anthony Lin-bsp-person> at alin364@bloomberg.net
Anthony Aarons, Peter Blumberg
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