N.Y. adviser bilked investors, bought a beach house: SEC
A New York investment adviser used some of the $74 million he raised from investors from 2005 through…
A New York investment adviser used some of the $74 million he raised from investors from 2005 through this January as a down payment on a $3.35 million beach house on Long Island, according to securities regulators.
The Securities and Exchange Commission alleges that Brian Raymond Callahan of Old Westbury, N.Y., defrauded two dozen investors in five offshore funds he operated through two advisory firms, Horizon Global Advisors LLC and Horizon Global Advisors Ltd. He misrepresented to investors how their money would be used, as well as the liquidity of the investment, according to the SEC complaint.
Meanwhile, a federal judge in Islip, N.Y., last Monday froze the assets of Mr. Callahan and his two firms. A hearing will be held at the end of the month.
Mr. Callahan used investor money to fund his brother-in-law’s private-real-estate project, which was facing foreclosure, in exchange for promissory notes that falsely claimed to be “payable on demand,” according to the SEC complaint. The notes were actually illiquid and unsecured, the SEC said.
Mr. Callahan allegedly used the notes to hide his misuse of investor funds, the SEC said.
Additionally, the notes reflect an amount that “far exceeds” how much Mr. Callahan gave to his brother-in-law’s project. That, in turn, inflated his assets under management and inflated his management fees by 800%, the complaint said.
Some of the money was indeed invested in a New York-based hedge fund. But other client funds were used to pay off redemptions of certain investors and to buy the beach house, the SEC said.
The property is located at Mr. Callahan’s brother-in-law’s resort, according to the commission.
Mr. Callahan “continues to hope that investors get all their money back through retainment of the promissory notes and sale of the other assets,” said his attorney, Robert Knuts of Park & Jensen LLP.
“A judge will decide the next step” at the end of the month, Mr. Knuts said.
The SEC claims that Mr. Callahan refused to testify in the investigation. The adviser recently told investors about the allegations but stated that he had broken no laws, the SEC said.
“Mr. 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, the SEC’s associate enforcement director.
Mr. Callahan also failed to tell investors that the Financial Industry Regulatory Authority Inc. in 2009 barred him from associating with any Finra member, the SEC said in its complaint.
Learn more about reprints and licensing for this article.
