Authorities announced that a New York investment fund manager has agreed to plead guilty to charges he masterminded a $96 million Ponzi scheme that diverted investor funds to purchase a 117-room Montauk beachfront resort among other things. Brian R. Callahan, 44, will plead guilty to one count of securities fraud and one count of wire fraud. In exchange, prosecutors agreed to drop over twenty remaining charges originally brought in an August 2013. Callahan could face up to a forty-year prison term if he receives the maximum sentence under the charges,
Authorities indicted Callahan and his brother-in-law, Adam J. Manson in August 2013. 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 required a $5 million minimum investment. Another fund, the Fiduciary Select Income Fund, LP ("Fiduciary"), advertised itself as a short-term investment similar to a money market fund, but claimed above-average returns through investments in high-dividend stocks, bonds, and certificates of deposit. Investors were provided with regular account statements purportedly showing consistent account growth. In total, the funds raised nearly $120 million from at least 40 investors, including the Montauk, N.Y. volunteer fire department and a Maryland investor that alone lost $11 million.
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.
A copy of the indictment is below: