Two Old Westbury men were indicted Thursday for operating a $96 million ponzi scheme through a floundering beachfront resort and residence in Montauk, according to a press release from the United States Attorney’s Office of the Eastern District of New York.
Investment fund manager Brian R. Callahan, 43, and his brother-in-law Adam J. Morrison, 41, pleaded not guilty at the United States Courthouse in Islip on 24 counts of conspiracy to commit securities and wire fraud in addition to charges of identity theft. The two men are accused of having raised $118 million from at least 40 investors between December 2006 and February 2012 and funneled $96 million through the unsuccessful Panoramic View Resort & Residences real estate venture in which they held ownership.
According to the release, the federal government also seized more than $1 million in alleged criminal proceeds and moved to forfeit Callahan and Manson’s interest in the Panoramic View Resort & Residences.
“To conceal their status as business failures, the defendants employed all the tricks in the typical con man’s bag,” said United States Attorney Loretta E. Lynch in the release, who announced the charges with FBI Assistant Director-in-Charge George Venizelos and IRS Special Agent-in-Charge Toni Weirauch. “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.”
Callahan would assure investors their money would be placed in mutual funds, hedge funds and other securities, according to the release, but instead $96 million was put toward the 117-unit Panoramic View.
To continue the scheme, Callahan defrauded new investors to pay off those whose money he had previously taken. In one instance, according to the release, Callahan received $11 million from a Maryland resident after promising to invest in low-risk securities, which he then used to pay other debts.
According to the release, Callahan and Manson also used the funds to purchase luxury items, including expensive cars and residences in Old Westbury and Westhampton.
“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,” Weirauch said in the release.
The duo also lied to auditors about the state of the investments using fake documents, including bogus promissory notes and doctored balance sheets, according to the release, and as a result investors were told their funds were performing and often continued investing with Manson and Callahan.
Callahan allegedly procured $600,000 from a Long Island-based fire department by promising he’d invest the department’s money in mutual funds and securities, but instead diverted the money into the Panoramic View and returned false account statements to the investors, according to the release.
Manson allegedly defrauded more than $45 million from a New York-based lender in connection with his development project at the resort, attempting to extend the loans past their maturity date by telling the lender the money the resort received was from his father and not from Callahan’s funds, according to the release.
Manson then told an independent auditor of Callahan’s funds that there were no other creditors or debts due on the Panoramic View.
“Allegedly, Mr. Callahan and Mr. Manson violated the trust of their clients, stealing victims’ hard-earned money to perpetuate their fraud,” Venizelos said in the release. “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.”
If convicted, Callahan and Manson face a maximum 20-year sentence on each count of conspiracy to commit wire fraud as well as five years on the conspiracy to commit securities fraud count. Callahan also faces two years for each count of aggravated identity theft count.
Callahan and Manson could also be fined up to $5 million for each securities fraud count, $250,000 for each wire fraud count, conspiracy to commit wire fraud count and conspiracy to commit securities fraud counts. Callahan may also be fined up to $250,000 for each aggravated identity theft count.
Reach reporter Bill San Antonio by e-mail at bsanantonio@theislandnow.com, by phone at 516.307.1045 x215 or on Twitter @b_sanantonio. Also follow us on Facebook at facebook.com/theislandnow.
