Alleged Fraudster Used Bermuda Account
The US Securities and Exchange Commission today [Mar.6] announced it has charged a New York-based investment adviser with using a Bermuda client fund account to defraud investors in five offshore funds, using some of their money to buy himself a multi-million dollar beach resort property on Long Island.
The SEC alleges that Brian Raymond Callahan of Old Westbury, New York, raised more than $74 million from at least two dozen investors since 2005, promising them their money would be invested in liquid assets.
Instead, Callahan diverted investor money to his brother-in-law’s beach resort project that was facing foreclosure, and in return received unsecured, illiquid promissory notes.
Prosecutors allege Callahan defrauded the Callahan Funds and their investors by commingling and misusing Callahan Fund assets. And Callahan is also accused of engaging in a fraudulent scheme to divert assets from some of his funds to pay investors in his other funds.
Until sometime in 2010, Callahan directed investors to wire their investments to several offshore accounts in the the British Virgin Islands,” reads the indictment against him. “In about 2010, Callahan advised investors to wire their funds to a Bermuda client funds account.
“Callahan then wired assets of the Callahan Funds from the BVI accounts or the
Bermuda Client Funds Account to an escrow account established by his father-in-law, which was established to hold payments from purchasers and subscribers
relating to the real estate project. In the Escrow Account, assets from all of the Callahan Funds were commingled and then sometimes improperly transferred to other investors.:
Callahan also used investor funds to pay other investors and make a down payment on the $3.35 million unit he purchased at his brother-in-law’s real estate project.
According to the SEC’s complaint filed yesterday in federal court in Islip, New York, Callahan operated the five funds through his investment advisory firms Horizon Global Advisors Ltd. and Horizon Global Advisors LLC.
He used the promissory notes to hide his misuse of investor funds. The promissory notes overstated the amount of money diverted to the real estate project.
For instance, in 2011, Callahan received $14.5 million in promissory notes in exchange for only $3.3 million he provided to his brother-in-law. The inflated promissory notes allowed Callahan to overstate the amount of assets he was managing and inflate his management fees by 800 percent or more.
“Callahan misled investors in his funds with false promises, and he enriched himself at their expense when he diverted fund assets for his personal use and pocketed inflated management fees,” said Antonia Chion, Associate Director in the SEC’s Division of Enforcement.
According to the SEC’s complaint, Callahan refused to testify in the SEC’s investigation and recently informed investors about the investigation, but gave false assurances that no laws had been broken. Callahan also misled investors by not disclosing that in 2009, the Financial Regulatory Industry Authority barred him from associating with any FINRA member.
The SEC charges Callahan and his advisory firms with violating federal antifraud laws. The SEC is seeking preliminary and permanent injunctions against Callahan and his firms, return of ill-gotten gains with interest, and financial penalties.
At the SEC’s request, and after a court hearing yesterday, the court granted a temporary restraining order freezing the assets of Callahan and his advisory firms, enjoining them from violating the antifraud provisions, and granting other emergency relief.
The SEC’s investigation has been conducted by Holly Pal, Linda French, Osman Handoo, Ann Rosenfield, Natalie Lentz and Lisa Deitch of the SEC’s Division of Enforcement. The SEC’s litigation is being led by Dean Conway.
The Commission acknowledges the assistance of the British Virgin Islands Financial Services Commission and the Bermuda Monetary Authority.
“Callahan … gave false assurances that no laws had been broken.” Oh, he has got to be connected to some of our folks!!!
How is this continually happening? WILLFUL IGNORANCE!
Where is the BMA and the local service providers to this guys? Bankers, lawyers and accountants, not to mention the Fund managers!