N.Y. Resort Owners Charged With $96 Million Ponzi Fraud

N.Y. Resort Owners Charged With $96 Million Ponzi Fraud

A money manager and a real estate developer already facing a regulator’s fraud lawsuit were charged with running a $96 million Ponzi scheme and diverting the proceeds to their New York beachfront resort. Brian R. Callahan, 43, and his brother-in-law Adam J. Manson, 41, were charged in a 24-count indictment unsealed today in federal court in Central Islip, New York. They pleaded not guilty and were released on bond. The men are accused of telling investors that their money was going into hedge funds and other investment vehicles while actually much of it was going to the unprofitable 117-unit Panoramic View Resort & Residences in Montauk.“The defendants used one of Long Island’s landmarks, the Panoramic View Resort, to perpetrate a wide-ranging fraud,” U.S. Attorney Loretta Lynch said today in a statement about the scheme, which purportedly took place from 2006 to 2012 and involved more than 40 investors. “To conceal their status as business failures, the defendants employed all the tricks in the typical con man’s bag.”

Callahan, of Old Westbury, and Manson, of New York, were partners in Distinctive Ventures, a real estate investment firm that purchased the resort in January 2007 for about $38 million, according to the indictment. Callahan, a former securities broker who was sanctioned by regulators in 2009, was also managing a group of offshore investment funds, for which he was soliciting money from investors, the U.S. said.

Investment Funds

The funds at issue managed by Callahan include Pangea Offshore High Yield Portfolio LLC, Diversified Global Investments, Horizon Millennium Investments LP and Masters Global Fund LP.

Callahan used investor funds to cover part of the purchase price of the resort and also dipped into the money to help make loan payments for the property, according to the indictment. He drained more of the funds and continued to seek other investors as the property failed to generate enough income to pay its debts, according to the indictment.

Prosecutors alleged the men sent investors fake account statements and repaid them with some of their own money to keep the scheme afloat. Callahan also misled an auditor by creating bogus documents and impersonating some investors using a fake e-mail account and a forged signature, the government said.

SEC Lawsuit

In March 2012, Callahan was sued by the U.S. Securities and Exchange Commission over the alleged fraud. Manson was later added as a defendant in the suit. That case is pending.

Manson is accused of defrauding the New York-based lender that provided the men with a $45 million loan for the property. The lender isn’t identified by name in the indictment.

“Callahan gave his word that he would invest his clients’ funds safely and responsibly in established vehicles,” Lynch said in the statement. “Instead, he simply stole the funds to prop up his partner’s failing investment.”

Both men are charged with conspiracy to commit securities fraud, conspiracy to commit wire fraud, securities fraud and wire fraud. Callahan is also charged with aggravated identity theft. They face a maximum of 20 years in prison if convicted of securities fraud, wire fraud or conspiracy to commit wire fraud, according to prosecutors.

The defendants pleaded not guilty in Central Islip, said Robert Nardoza, a spokesman for Lynch. Manson was released on a $1 million bond and Callahan was released on a $2 million bond, he said.

Money Seized

The government said it seized more than $1 million in proceeds from the alleged scheme and is seeking the forfeiture of interest in the resort. Distinctive Ventures still owns the resort, according to its website. A representative who answered a phone number for the resort declined to give any comment.

In its complaint, the SEC said both Callahan and Manson asserted their Fifth Amendment privilege against self-incrimination when asked about the scheme during an investigation. U.S. District Judge Arthur Spatt in Central Islip has issued an order freezing some of Callahan’s assets and the funds he managed.

“It’s unfortunate that the government decided to escalate it,” Robert Anello, a lawyer for Manson, said in a phone interview today.

A lawyer for Callahan, Robert Knuts, didn’t immediately respond to a call and e-mails seeking comment on the charges.

The criminal case is U.S. v. Callahan; the civil case is Securities and Exchange Commission v. Callahan, 12-cv-01065, both in U.S. District Court, Eastern District of New York (Central Islip).

To contact the reporter on this story: Christie Smythe in federal court in Brooklyn, New York, at csmythe1@bloomberg.net

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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