Investment Fund Manager Pleads Guilty In $96 Million Ponzi Scheme
Investor Funds Diverted To Purchase ‘Panoramic View Resort & Residences’ In Montauk, New York, And Fund Lavish Lifestyle
Earlier today, Brian R. Callahan, 44, pleaded guilty to one count of securities fraud and one count of wire fraud for operating a $96 million Ponzi scheme through his various offshore investment funds. Pursuant to his plea agreement with the government, Callahan has agreed to the forfeiture of $67.4 million, which includes proceeds from the sale of his former residence in Old Westbury, New York and a beachfront condominium in Westhampton, New York. When sentenced, Callahan faces up to 40 years in prison and the payment of approximately $96 million in restitution to the victims of his fraud.
The guilty plea was 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 Shantelle P. Kitchen, Acting Special Agent-in-Charge, United States Internal Revenue Service, Criminal Investigation, New York (IRS).
“Callahan used six offshore entities to perpetrate one of the largest investment frauds in Long Island history. Through lies and deceit, he misled investors and stole investor funds, including investments from a local fire department, to support a lavish lifestyle and operate a multi-million dollar Ponzi scheme. Today’s guilty plea marks the end of Callahan’s schemes and his lavish lifestyle and demonstrates this Office’s steadfast commitment to protect the investing public from fraud,” stated United States Attorney Lynch. Ms. Lynch expressed her grateful appreciation to the FBI, the IRS, Securities and Exchange Commission, and the British Virgin Islands Financial Investigation Agency for their cooperation and assistance in the investigation and prosecution of this case.
According to court filings and facts presented at the plea hearing, 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.1 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.
Today’s guilty plea took place before United States Magistrate Judge A. Kathleen Tomlinson.
The government’s case is being prosecuted by Assistant United States Attorneys Christopher C. Caffarone, Winston M. Paes, Brian D. Morris and Karin K. Orenstein.
Today’s announcement is part of efforts underway by President 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 is 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 including more than 2,900 mortgage fraud defendants. For more information on the task force, visit www.stopfraud.gov.
BRIAN R. CALLAHAN
Old Westbury, New York
E.D.N.Y. Docket No. 13-CR-453
1 The charges against co-defendant Manson are merely allegations, and he is presumed innocent unless and until proven guilty.