SEC Charges Anew New York Investment Adviser

June 05, 2012 /

The US Securities and Exchange Commission amended its complaint against New York investment adviser, Brian Raymond Callahan, and Callahan’s investment advisory firms, Horizon Global Advisors Ltd., and Horizon Global Advisors, LLC, in the SEC’s emergency action filed on March 5, 2012 that halted an ongoing $90 million Ponzi scheme.

The SEC’s amended complaint additionally charges Callahan’s five offshore funds with fraud and Callahan’s brother-in-law, Adam Judd Manson (“Manson”) and two of Manson’s entities, with aiding and abetting Callahan’s scheme. The amended complaint also names Callahan’s wife, Sheri Manson Callahan, as a relief defendant. Callahan’s five offshore funds have agreed to be placed under the control of the receiver that the Court appointed in an Order issued on March 27, 2012.

The SEC’s amended complaint includes the following allegations:

  • From at least 2005 to January 2012, Callahan raised over $90 million from at least 45 investors for his five offshore funds. Callahan misused a portion of investor assets to pay certain other investors seeking redemptions, misused investor assets to pay for personal expenses for himself and his wife, and improperly diverted assets of the funds to Manson’s private real estate project on Long Island.
  • Manson and his entities, Distinctive Investments, LLC and Distinctive Ventures, LLC, created a paper trail of inflated false promissory notes and false audit confirmations that helped Callahan conceal the scheme.
  • Manson and his entities provided Callahan with unsecured promissory notes, which falsely stated they were payable on demand even though they were illiquid. In addition, the face value of the promissory notes far exceeded the amount of money that Callahan provided to Manson’s real estate project. Callahan used the false promissory notes to hide his misuse of fund assets and to inflate the amount of assets under management.
  • Manson and Distinctive Investments issued audit confirmations to the auditors of Callahan’s funds that misrepresented: (1) the outstanding principal balances on the promissory notes; and (2) that the promissory notes were callable. By misleading the auditors, Manson helped hide the true financial condition of Callahan’s funds.

The amended complaint also names Callahan’s wife, Sheri Callahan, who benefited from Callahan’s fraud, as a relief defendant. For example, Sheri Callahan holds the title to Callahan’s primary residence. The SEC alleges that Callahan made over $500,000 in mortgage payments on his primary residence with investor funds. The SEC is seeking the return of Sheri Callahan’s ill-gotten gains, with interest.

The Court previously issued an Order on March 27, 2012 preliminarily enjoining Callahan and his advisory firms from violating antifraud provisions of the federal securities laws, continuing an asset freeze of Callahan’s and his advisory firms’ assets, requiring Callahan and his advisory firms to repatriate assets, prohibiting Callahan and his advisory firms from soliciting or accepting any new investments, and appointing a receiver for the estates of Callahan’s advisory firms.



1 Comment for “SEC Charges Anew New York Investment Adviser”

  1. Unfortunately this is not surprising given that 80-90% of all audit confirmations are still sent in the mail or by fax from the accounting firms performing the audits, even though electronic confirmations could have helped the auditors catch such frauds. At this point you don’t need to go very far to see the long trail of upset investors who lost money due in part to audit confirmation frauds that hid the fraudulent activities of the bad actors from the external auditors. Companies like Olympus, Kmart, Just for Feet, China Biotics, Parmalat, Ahold, Refco, HealthSouth, Satyam, and many more…

Share your opinion

SEO Powered By SEOPressor