United States Forfeits $40 Million Through Court-Ordered Sale of Montauk Resort
Yesterday, United States Judge Arthur D. Spatt of the Eastern District of New York entered a decree ordering the forfeiture of approximately $40 million in net proceeds from the sale of a Montauk beachfront property. The sale of approximately 9,606 shares of 93 Old Montauk Owners, Inc., the sole owner of the Panoramic View Resort & Residences, a 117-unit resort and residence development in Montauk, New York, closed on December 7, 2015. The shares were sold to Panoramic Partners LLC, an affiliate of BLDG Management Co., Inc., for $63.9 million.
Distinctive Ventures, LLC had purchased the Panoramic View in 2007 using proceeds of a $96 million Ponzi scheme orchestrated by former investment fund manager Brian R. Callahan. Distinctive Ventures is wholly owned by Distinctive Investments, which in turn is owned by Callahan’s brother in-law, Adam Manson. After Callahan fraudulently diverted money from investment funds he managed to the Panoramic View, Manson helped Callahan hide the fraud from the funds’ independent auditors.
In April 2012, the United States filed a civil forfeiture action against Distinctive Venture’s shares in the Panoramic View and other assets traceable to Callahan and Manson’s fraud. Judge Spatt directed the sale of the Panoramic View shares to preserve their potential value for the government and, in turn, for the victims of the fraud.
The sale of the Panoramic View and forfeiture of the net proceeds were announced by Robert L. Capers, United States Attorney for the Eastern District of New York, Diego Rodriguez, Assistant Director-in-Charge, Federal Bureau of Investigation, New York Field Office, and Shantelle P. Kitchen, Special Agent-in Charge, Internal Revenue Service, New York Field Office.
“Brian Callahan, assisted by Adam Manson, orchestrated one of the largest Ponzi schemes in Long Island history. Today we announce the liquidation of the proceeds of that scheme,” stated United States Attorney Capers. “This unprecedented sale exemplifies the importance of using civil forfeiture to ensure that assets will be available to repay fraud victims. Due to the hard work of prosecutors in this Office, assisted by the investigating agencies and the U.S. Marshals Service, we were able to maximize the pool of funds potentially available for distribution to victims of this fraud.” Mr. Capers thanked the Securities and Exchange Commission and the British Virgin Islands Financial Investigation Agency for their cooperation and assistance in the investigation and prosecution of this case.
“Instead of investing victim funds as intended, Callahan and Manson entered into a quid-pro-quo arrangement that served to advance each other’s interests. We have a responsibility to uphold the public’s confidence in the integrity of our financial markets. Today’s court order brings us one step closer to restoring assets to the victims of this fraud,” said FBI Assistant Director-in-Charge Rodriguez.
“Victims of Ponzi schemes are seldom made whole, both emotionally and financially,” said IRS Special Agent-in-Charge Kitchen. “It is our hope, however, that the proceeds from this forfeiture bring some financial relief to the victims, along with a measure of closure.”
In January 2007, Distinctive Ventures purchased the Panoramic View for $38 million. To acquire the resort, Callahan diverted more than $12.1 million from investment funds he operated to Distinctive Investments. In addition, Distinctive obtained a $35 million acquisition loan and $10 million construction loan from a commercial lender secured by Distinctive’s shares and proprietary leases on unsold units (together, “Loan #1”). From May 2008 through November 2011, Callahan diverted at least $17 million of investors’ money to make payments on Loan #1.
In March 2011, Callahan and his wife acquired shares from Distinctive Ventures in connection with entering into a proprietary lease for a newly renovated Panoramic View unit (the “Callahan Shares”). To complete the purchase, Callahan used approximately $450,000 of investors’ money as a downpayment on the Callahan Shares and obtained a $2.3 million mortgage from a second lender (“Loan #2”).
On April 17, 2012, the United States filed a civil forfeiture action against Distinctive Venture’s shares and the Callahan Shares and other assets traceable to Callahan and Manson’s fraud, ensuring that these assets would be available for forfeiture. In July 2012, however, Distinctive Ventures defaulted on Loan #1 and began accruing interest in the amount of over $2.2 million annually. On February 22, 2014, Judge Spatt granted the government’s motion to sell Distinctive’s shares, ruling that a sale on commercially reasonable terms was necessary and appropriate to preserve the value of the Panoramic View. On March 27, 2014, Judge Spatt accepted the government’s proposal to maximize the sale price of Distinctive’s shares through a bidding process. Pursuant to the government’s proposal, a bid package and contract of sale was distributed to interested parties. The final bid deadline was August 12, 2015. After review of the bids received, Panoramic Partners, LLC was selected as the winning bid.
Callahan and Manson, who were charged in July 2013 with securities fraud and wire fraud offenses, consented to the forfeiture of the Panoramic View as part of their guilty pleas in April and May 2014, respectively. Pursuant to his plea, Callahan conveyed the Callahan Shares back to Distinctive Ventures so they could be included in the interlocutory sale.
The sale of Distinctive’s shares to Panoramic Partners, LLC closed on Monday, December 7, 2015. At the closing, the lenders for Loan #1 and Loan #2 were paid pursuant to the terms of a court-ordered stipulation. Pursuant to the decree of forfeiture issued by Judge Spatt today, the net proceeds of the sale, or approximately $40.3 million, were forfeited to the government, ensuring their availability to repay victims of Callahan and Manson’s fraud through the Department of Justice’s remission procedures.
This prosecution was the result of efforts by President Obama’s Financial Fraud Enforcement Task Force (FFETF) which was created in November 2009 to wage an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. Attorneys’ Offices, and state and local partners, it’s the broadest coalition of law enforcement, investigatory, and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state, and local authorities; addressing discrimination in the lending and financial markets, and conducting outreach to the public, victims, financial institutions, and other organizations. Since fiscal year 2009, the Justice Department has filed over 18,000 financial fraud cases against more than 25,000 defendants. For more information on the task force, visit http://www.StopFraud.gov.
The government’s case is being prosecuted by Assistant United States Attorneys Brian D. Morris, Karin K. Orenstein, Christopher C. Caffarone, and Winston M. Paes.
BRIAN R. CALLAHAN
- Age: 45
- Old Westbury, New York
ADAM J. MANSON
- Age: 43
- Old Westbury, New York