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A money manager and real estate developer were charged with running a $96 million Ponzi scheme and diverting the proceeds to a New York beachfront resort they owned.
Brian R. Callahan, 43, and his brother-in-law Adam J. Manson, 41, a real estate developer, were charged in a 24-count indictment unsealed Thursday in federal court in Central Islip, N.Y.
The two are accused of telling investors including a fire department that they were putting its money into mutual funds, hedge funds and other investment vehicles. Instead, much of it went to the unprofitable 117-unit Panoramic View Resort & Residences in Montauk, prosecutors said. They returned some of the funds to investors to keep the scheme afloat, prosecutors said.
“Callahan gave his word that he would invest his clients’ funds safely and responsibly in established vehicles,” Brooklyn U.S. Attorney Loretta Lynch said in a statement. “Instead, he simply stole the funds to prop up his partner’s failing investment.”
Manson is also accused of defrauding a New York-based lender when taking out a $45 million loan for the property, according to the indictment.
40 investors
Prosecutors said the men ran the scheme from December 2006 to February 2012 and raised money from at least 40 investors.
Both 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 two were scheduled to be arraigned Thursday in Central Islip.
Callahan was sued by the U.S. Securities and Exchange Commission over the alleged fraud in March 2012. Manson was later added as a defendant in the suit. That case is pending.
The charges are the same as the claims in the civil matter, Robert Anello, a lawyer for Manson, said in a phone interview. “It’s unfortunate that the government decided to escalate it.”
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).
