On May 31, 2012, the 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.