Bloomberg News

New York Money Manager Raised $75 Million in Fraud, SEC Says

March 05, 2012

A money manager from Old Westbury, New York, was accused of running a scheme in which he lied to 24 investors who gave him $74.9 million from 2005 to 2012, telling them the money would be put into hedge funds, including those run by Morgan Stanley. (MS)

Brian Raymond Callahan used the money to pay back other investors and for personal expenses such as a “multimillion- dollar cooperative unit on Long Island,” the U.S. Securities and Exchange Commission said today in a civil complaint filed in federal court in New York.

“Callahan’s solicitation of investors involved material misrepresentations about the use of their money, the liquidity of their investments and the asset diversification,” the SEC said.

Callahan didn’t tell his clients he was barred in 2009 from associating with any member of the Financial Industry Regulatory Authority, according to the SEC. The agency asked for an immediate freeze on his assets. It said Callahan refused to appear for sworn testimony pursuant to a subpoena.

The case was assigned to U.S. District Judge Arthur Spatt in Central Islip, New York. Robert Knuts, a lawyer for Callahan, didn’t immediately return a call seeking comment on the lawsuit.

Offshore Funds

Callahan took money for at least five offshore funds he ran, according to the complaint. He told investors their money would end up in New York hedge funds Kinetics Institutional Partners LP and Millennium USA, in addition to the Morgan Stanley funds, the SEC said. Some of the assets of Callahan’s funds were invested in those funds, the agency said.

Callahan said his liquid assets at the end of last year totaled $65.1 million when the actual figure was $6.46 million, the SEC said.

His use of fraudulent promissory notes inflated the amount of assets under management, resulting in his receiving management fees inflated by as much as 800 percent, the SEC said.

The investors included a California teacher who gave $270,000 and a small-business owner in Kentucky who gave $2.9 million, the SEC said. The agency didn’t name those investors.

The case is Securities and Exchange Commission v. Callahan, 12-cv-01065, U.S. District Court, Eastern District of New York (Central Islip).

To contact the reporter on this story: Thom Weidlich in Brooklyn, New York, federal court at tweidlich@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net


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