Investment Advisor and Broker/Dealer Fraud, Mismanagement and Misrepresentation FINRA Arbitration and Litigation Attorney Russell L. Forkey, Esq.
Securities and Exchange Commission v. Brian Raymond Callahan, Horizon Global Advisors Ltd. and Horizon Global Advisors, LLC, (United States District Court for the Eastern District of New York, Civil Action No. 12-CV-1065)
SEC CHARGES NEW YORK INVESTMENT ADVISER WITH DEFRAUDING INVESTORS AND SEC OBTAINS EMERGENCY RELIEF
Recently, the Securities and Exchange Commission filed charges against a New York investment adviser for defrauding investors in five offshore funds and using some of their money to buy himself a multi-million dollar beach resort property on Long Island.
Brian Raymond Callahan, of Old Westbury, New York, raised more than $74 million from at least two dozen investors since 2005, promising them their money would be invested in liquid assets, the SEC alleged in a complaint filed in federal court in Islip, New York. Instead, Callahan diverted investors’ money to his brother-in-law’s beach resort and residences project, which was facing foreclosure, and in return received unsecured, illiquid promissory notes, according to the complaint. Callahan also used investors’ funds to pay other investors and to make a down payment on the $3.35 million unit he purchased at his brother-in-law’s real estate project, the SEC alleged.
Callahan operated the five funds through his investment advisory firms, Horizon Global Advisors Ltd., and Horizon Global Advisors, LLC, and used the promissory notes to hide his misuse of investor funds, the complaint alleged. The promissory notes overstated the amount of money diverted to the real estate project; 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% or more.
Callahan refused to testify in the SEC’s investigation and recently informed investors about the investigation, but gave false assurances that no laws had been broken. Callahan also misled investors by not disclosing that in 2009, the Financial Regulatory Industry Authority barred him from associating with any FINRA member, the SEC alleged.
The SEC charges Callahan and his advisory firms with violating federal antifraud laws, specifically Sections 17(a)(1), (2) and (3) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rules 10b-5(a), (b) and (c) thereunder, and Sections 206(1), 206(2) and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder. The SEC is seeking preliminary and permanent injunctions against Callahan and his firms, return of ill-gotten gains, with interest, and civil penalties
At the SEC’s request, and after a court hearing on March 5, 2012, the court granted a temporary restraining order freezing the assets of Callahan and his advisory firms, enjoining them from violating the antifraud provisions and granting other emergency relief.