Two New York men have been arrested by the Federal Bureau of Investigation ("FBI") for masterminding a $100 million Ponzi scheme. Brian R. Callahan, of Old Westbury, N.Y., and Adam J. Manson, of New York, N.Y., were indicted on three counts of conspiracy to commit wire fraud, two counts of securities fraud, seventeen counts of wire fraud, and two counts of aggravated identify theft. If convicted of all charges, the men could face hundreds of years in potential jail time. The government is also seeking forfeiture of any proceeds of the fraud, including several houses located in Montauk, Old Westbury, and Westhampton Beach.
According to the indictment, Callahan managed multiple offshore investment funds organized in Nevis and the British Virgin Islands. Several of these funds operated as "fund-of-funds", meaning that they purportedly used investor funds to invest in other hedge funds. Callahan told investors that their funds would be invested in various New York hedge funds, and told investors that a $5 million minimum investment was required. Another fund, the Fiduciary Select Income Fund, LP ("Fiduciary"), advertised itself as a short-term investment similar to a money market fund, but claiming above-average returns through investments in high-dividend stocks, bonds, and certificates of deposit. In total, the funds raised nearly $120 million from at least 40 investors, and investors were provided with regular account statements purportedly showing consistent account growth.
However, rather than using investor funds as promised, the men diverted tens of millions of dollars for a variety of unauthorized purposes and used new investor funds to make payments to existing investors in Ponzi-scheme fashion. Investor funds were used for a myriad of personal expenses, including credit card bills, golfing club dues, down payments on multiple houses, and payments for luxury automobiles including a Range Rover and BMW. The men also acquired a 10-acre property in Montauk, New York, that consisted of multiple buildings and beach-front cottages.
In addition to the fraud charges, the indictment also charged Callahan with two counts of aggravated identity theft for his use of the identification of other individuals.
A copy of the indictment is here.