Legal
SEC Charges New York Investment Advisor; Obtains Asset Freeze
The
Securities and Exchange Commission has charged a New
York-based investment advisor with defrauding investors in five
offshore funds and funneling off assets to purchase himself a
multi-million dollar beach property on Long Island. The SEC has
obtained an asset freeze order in the case.
The Commission alleges that Brian Callahan has raised over $74 million from at least 24 investors since 2005, promising them that their money would be invested in liquid assets. However, he allegedly diverted some of these funds to his brother-in-law’s beach resort that was facing foreclosure and received unsecured, illiquid promissory notes in return. He also made a down payment on a $3.35 million unit he bought at his brother-in-law’s real estate project, the regulator alleges.
The SEC filed a complaint this week in federal court in Islip, NY, alleging that Callahan operated five funds though his investment advisory firms, Horizon Global Advisors Ltd and Horizon Global Advisors LLC, and used the promissory notes, which overstated the amounts diverted to the real estate project, to hide his misuse of investor funds.
“For instance, in 2011, Callahan received $14.5 million in promissory notes in exchange for only $3.3 million he provided to his brother-in-law. The inflated promissory notes allowed Callahan to overstate the amount of assets he was managing and inflate his management fees by 800 per cent or more,” the SEC said in a statement.
So far, Callahan has refused to testify in the investigation, the SEC says, and has informed investors about it while reassuring them - misleadingly according to the Commission - that no laws have been broken. He is also accused of misleading investors by not disclosing that he was previously barred by the Financial Regulatory Industry Authority from associating with any FINRA member.
The SEC has obtained an order freezing the assets of Callahan and his advisory firms. The agency is seeking preliminary and permanent injunctions against Callahan and his firms, return of ill-gotten gains with interest, and financial penalties.