Two brothers-in-law from Old Westbury worked hand in hand to dupe at least 40 investors, misappropriating $96 million in a large-scale Ponzi scheme and using the proceeds to purchase and support the 117-unit Panoramic View Resort on the ocean in Montauk, according to a press release from the U.S. Attorney’s office, which charged them last week.
The Montauk Fire Department was almost a victim of their alleged deception, according to Chief Richard Schoen: The department had invested $600,000 in scholarship fund money with the men, only to pull it out, safely, when things looked questionable.
Brian R. Callahan, 43, and Adam J. Manson, 41, were each charged with conspiracy to commit securities and wire fraud, as well as other counts, for their roles in operating the scheme, according to the U.S. Attorney’s Office. Both pleaded not guilty to the 24-count indictment in a Central Islip courtroom on Thursday afternoon, August 1.
According to the press release, Mr. Callahan raised more than $118 million from at least 40 investors in connection with four different investment funds that he was overseeing as an investment fund manager. Prosecutors charge that he told his investors that their money would be put into mutual funds, hedge funds and other securities. Instead, $96 million was misappropriated, put into the Ponzi scheme, and diverted to the Panoramic View, which Mr. Callahan owns with Mr. Manson, according to the U.S. Attorney’s Office, which described the Montauk resort as an unsuccessful venture.
Additionally, Mr. Callahan 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 scheme afloat, according to the press release. He bought expensive cars and homes in Old Westbury and Westhampton as well, it said.
Mr. Manson, who managed the Panoramic View, allegedly defrauded a New York-based lending institution that had loaned him more than $45 million for his real estate development project at Panoramic View and lied to the independent auditor of Mr. Callahan’s investment funds. The brothers-in-law provided fake documents, including bogus promissory notes and doctored balance sheets, to the auditor, the press release said.
The scheme hit even closer to home when it was revealed that Mr. Callahan allegedly solicited a $600,000 investment from the Montauk Fire Department by promising to put the department’s money in mutual funds and other securities. He also diverted the fire department’s funds to the Panoramic View and sent bogus account statements that showed the funds had been invested in mutual funds, according to the U.S. Attorney. The money was the department’s scholarship fund, which underwrites the scholarships it gives annually to high school graduates.
Chief Schoen said on Friday morning that the department did not lose “a single penny of the scholarship fund.” He said about six years ago, the department invested with Mr. Callahan on the recommendation of a fire department member who had been getting “great returns.” However, the department decided to pull its money when questions arose among members about where all the money was being invested, and if it was being put into rotating stocks. Chief Schoen said the fund manager couldn’t give clear answers.
“Nobody was comfortable,” he said. “I’m glad we did what we did and got out of it.”
Once the membership voted to remove all the funds, all $600,000 was returned a month later. It is now invested in bank CDs.
“We have more knowledge now than perhaps we had then,” Chief Schoen said about the department’s investment strategies. “No harm, no foul—it took place six years ago.”
U.S. Attorney Loretta Lynch said her office is committed to “aggressively” prosecuting those who commit financial crimes, however.
“To conceal their status as business failures, the defendants employed all the tricks in the typical con man’s bag,” she said in a statement. “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.”
The government seized more than $1 million in alleged criminal proceeds and moved to forfeit the men’s interest in the resort.
The Panoramic View’s website currently has a note to visitors—“While there has [sic] been some unsettling reports surrounding the Panoramic View the resort continues to operate normally while these issues are being resolved,” it states. “We look forward as always to serving our guests and residents.”
According to Robert J. Anello of Morvillo Abramowitz Grand Iason & Anello, representing Mr. Manson, the charges against him are “unfounded.”
“Although the government chose to escalate this matter, a full airing of the facts will demonstrate that Mr. Manson always acted in a manner consistent with the interests of the owners and investors of the Panoramic Property and that claims to the contrary cannot be sustained,” he said, noting that the criminal case rehashes the allegations that were made in the civil fraud case brought against his client last year.
He added, “Panoramic View will continue to be operated and, hopefully, when all is resolved, it will continue to prosper.”
Robert Knuts, representing Mr. Callahan, did not immediately return a call seeking comment.
On Thursday, Mr. Manson was released on a $1 million bond secured by $500,000 in equity in his father’s home, and Mr. Callahan was released on a $2 million bond secured by $500,0000 equity in three homes owned by his sister and father.
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, as well as five years in prison on the conspiracy to commit securities fraud count. In addition, Mr. Callahan faces two years in prison for each count of aggravated identity theft. Each man could be fined up to $5 million for each securities fraud count, $250,000 for each wire fraud count, and $250,000 for each aggravated identity theft count, according to the U.S. Attorney’s office, which did not specify how many counts of each charged were levied.
Mr. Manson and Mr. Callahan are due back in court on September 30 at 10 a.m.