David Saks: Fund Manager & Real Estate Developer Arrested- $96 Million Ponzi Fraud

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Fund Manager & Real Estate Developer Arrested- $96 Million Ponzi Fraud

Fund Manager and Real Estate Developer Arrested and Charged in $96 Million Securities Fraud Scheme
Defendants Diverted Investor Funds to Purchase Panoramic View Resort & Residences in Montauk, New York and Fund Lavish Lifestyles

U.S. Attorney’s Office August 01, 2013
  • Eastern District of New York (718) 254-7000
 

A 24-count indictment was unsealed this morning in federal court in Central Islip, New York, charging Brian R. Callahan, an investment fund manager, and Adam J. Manson, a real estate developer, with conspiracy to commit securities and wire fraud for their roles in operating a $96 million Ponzi scheme. Both defendants are in custody and will be arraigned this afternoon before United States Magistrate Judge A. Kathleen Tomlinson at the United States Courthouse in Central Islip. In addition, the government seized over $1 million of alleged criminal proceeds and moved to forfeit the defendants’ interest in the Panoramic View Resort & Residences in Montauk, New York (the Panoramic View).

The charges were announced by Loretta E. Lynch, United States Attorney for the Eastern District of New York; George Venizelos, Assistant Director in Charge, Federal Bureau of Investigation, New York Field Office (FBI); and Toni Weirauch, Special Agent in Charge, United States Internal Revenue Service, Criminal Investigation, New York (IRS).

According to the indictment and other court filings, between December 2006 and February 2012, Callahan raised more than $118 million from at least 40 investors in connection with four different investment funds that he managed. He had assured those investors that their money would be invested in mutual funds, hedge funds, and other securities.

Instead of investing the money as he promised, Callahan misappropriated approximately $96 million and began to operate the investment funds as a large-scale Ponzi scheme.

Among other things, Callahan diverted millions of dollars towards the Panoramic View, an unprofitable 117-unit beachfront resort and residence development in Montauk, New York, that he owned with his brother-in-law and co-defendant, Adam Manson.

He also commingled the money from the various investment funds and used it to pay tens of millions of dollars in partial redemptions to his victim investors to keep the Ponzi scheme afloat, and to purchase luxury items such as expensive cars and homes in Old Westbury and Westhampton, New York.

To avoid detection and continue the scheme, Callahan sent fake account statements to investors that falsely showed that their funds were invested and performing well, and he repeatedly lied to his investors about both the nature and status of their investments.

“As alleged, the defendants used one of Long Island’s landmarks, the Panoramic View Resort, to perpetrate a wide-ranging fraud,” stated United States Attorney Lynch. “Callahan gave his word that he would invest his clients’ funds safely and responsibly in established vehicles. Instead, he simply stole the funds to prop up his partner’s failing investment. To conceal their status as business failures, the defendants employed all the tricks in the typical con man’s bag. They created fake documents, stole a person’s identity and engaged in forgery. The defendants allegedly lied to the lender, they lied to the auditor, and Callahan repeatedly lied to his investors. The lies stop now. Today’s arrests demonstrate the Office’s commitment to aggressively prosecute those individuals who commit financial crimes.” Ms. Lynch expressed her grateful appreciation to the Securities and Exchange Commission and the British Virgin Islands Financial Investigation Agency for their cooperation and assistance in the investigation.

FBI Assistant Director in Charge Venizelos stated, “Allegedly, Mr. Callahan and Mr. Manson violated the trust of their clients, stealing victims’ hard earned money to perpetuate their fraud. Instead of investing the funds as promised, Mr. Callahan used the deposits to perpetuate the scheme, all while buying luxury cars and an estate in Westhampton. Mr. Callahan was so indiscriminant, he even stole from a Long Island Fire Department. Today, the game is up. The FBI will continue working to protect investors and stop alleged fraudsters.

IRS Special Agent in Charge Weirauch stated, “The architects of Ponzi-type schemes often employ a variety of sophisticated measures to keep them operating without detection. However, the cooperation between IRS-Criminal Investigation, the U.S. Attorney’s Office, and the FBI should give the investing public confidence that such schemes will ultimately be uncovered and thoroughly investigated, and that the scammers will be prosecuted.”

In one instance, Callahan allegedly solicited a $600,000 investment from a Long Island-based fire department by promising to invest the fire department’s money in mutual funds and other securities. Instead of investing the money, Callahan fraudulently diverted the fire department’s funds to the Panoramic View, and sent bogus account statements to the fire department that falsely showed that the funds had been invested in mutual funds. Callahan also convinced a Maryland resident to invest approximately $11 million after promising to invest those funds in low-risk securities. Callahan used the investor’s money to make redemption payments to other investors whom he had previously defrauded and to keep the Ponzi scheme afloat.

According to the indictment, Manson managed the Panoramic View property and poured the money that Callahan had diverted from the investors into Manson’s struggling real estate project at the Panoramic View.

To help Callahan carry out his investment scheme, Manson lied to the independent auditor of Callahan’s investment funds and, together with Callahan, provided fake documents, including bogus promissory notes and doctored balance sheets, to the independent auditor.

Manson’s and Callahan’s fraudulent actions concealed the misuse of the investors’ funds and caused the auditor to overstate the value and profits of Callahan’s investment funds to the victim investors. As a result of Manson and Callahan’s fraudulent actions, investors were lulled into believing that the funds were performing, and they continued to “invest” their money with Callahan.

As alleged in the indictment, Manson also defrauded a New York-based lending institution that had loaned more than $45 million to Manson in connection with his real estate development project at the Panoramic View. While attempting to extend these loans past their maturity date, Manson misled the lender about the money that the Panoramic View had received from Callahan’s funds, and falsely told the lender that the funds were from his father. Manson engaged in this fraudulent conduct in an effort to conceal the fact that he was simultaneously telling the independent auditor of the Callahan funds that there were no other creditors or debt associated with the Panoramic View.

The charges contained in the indictment are merely allegations, and the defendants are presumed innocent unless and until proven guilty.

If convicted, the defendants each face a maximum sentence of 20 years’ imprisonment on each of the securities fraud, wire fraud and conspiracy to commit wire fraud counts, five years’ imprisonment on the conspiracy to commit securities fraud count, and Callahan faces two years’ imprisonment for each of the aggravated identity theft counts. Additionally, if convicted, Callahan and Manson may be fined up to $5,000,000 for each of the securities fraud counts, $250,000 for each of the wire fraud, conspiracy to commit wire fraud and conspiracy to commit securities fraud counts, and Callahan may be fined up to $250,000 for each of the aggravated identity theft counts. In addition to seizing over $1 million in alleged criminal proceeds, the government is also seeking to forfeit all Panoramic View cooperative units held by Callahan and Manson, together with Callahan’s residence in Old Westbury, New York, and Manson’s beachfront condominium in Westhampton, New York.

The government’s case is being prosecuted by Assistant United States Attorneys David C. Woll, Jr., Christopher C. Caffarone, Brian D. Morris, and Karin Orenstein.

This prosecution was the result of efforts by President Barack Obama’s Financial Fraud Enforcement Task Force (FFETF) which was created in November 2009 to wage an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. Attorneys’ Offices, and state and local partners, it’s the broadest coalition of law enforcement, investigatory, and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state, and local authorities; addressing discrimination in the lending and financial markets; and conducting outreach to the public, victims, financial institutions, and other organizations. Over the past three fiscal years, the Justice Department has filed more than 10,000 financial fraud cases against nearly 15,000 defendants. For more information on the task force, visit http://www.StopFraud.gov.

The Defendants:


BRIAN R. CALLAHAN Age: 43
Old Westbury, New York

ADAM J. MANSON Age: 41
Old Westbury, New York

source: FBI

http://www.fbi.gov/newyork/press-releases/2013/fund-manager-and-real-estate-developer-arrested-and-charged-in-96-million-securities-fraud-scheme?utm_campaign=email-Immediate&utm_medium=email&utm_source=fbi-in-the-news&utm_content=245438




David Saks



Time&Temp Memphis

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Comment balloon 6 commentsDavid Saks • August 02 2013 08:13AM

Comments

Good Morning:  You never know who you can trust now a days!!  Keep up the good work and good luck with your business,  E

Posted by Ed & Tracy Oliva, The Oliva Team Arizona Agents (West USA Realty - Arizona) over 6 years ago

WOW and the foolish never learn or stop do they? How many times do we have to hear of fraudsters getting caught and going to prison before others realize if they do the same they will follow that same path right to the pokey????

Posted by David Shamansky, Creative, Aggressive & 560 FICO - OK, Colorado Mtg (US Mortgages - David Shamansky) over 6 years ago

This one's definitely in the "wicked real estate swindle" category Ed & Tracy. Thanks for your note.

Posted by David Saks ((retired)) over 6 years ago

The only thing they'll learn is how to make license plates and wash prison laundry, David. Nice to hear from you.

Posted by David Saks ((retired)) over 6 years ago

Oh my! Feel bad for the people that lost money!!

Posted by Julie Baldino, Opening Doors to New Chapters... (Front Door Realty) over 6 years ago

They lost a bunch, Julie. It's a dirty swindle, but common in this business. Here's some proof for you:

clickReal Estate Crimes

Hope you're doing fine.

Posted by David Saks ((retired)) over 6 years ago

This blog does not allow anonymous comments