Two major public entities, the Town of East Hampton and the Montauk Fire Department, have found themselves touched by an alleged $96 million Ponzi scheme involving the Panoramic View Resort and Residences in Montauk. And, knowing what has now been alleged, Suffolk District Attorney Thomas Spota must take a close look at whether local officials might have acted improperly.
Troubles at the Old Montauk Highway property have been known for some time, and the matter came to a head late last week with the arrest of two men, Brian R. Callahan and Adam J. Manson, who, federal authorities said, had swindled some 40 investors who were told they were buying into a stock fund when the money was used to pay off the Panoramic’s debt. The investors included the Montauk Fire Department.
By its own account, the Fire Department did the right thing, quickly pulling out of the deal after suspicions arose. The department had put cash from its scholarship fund into the duo’s investment fund, but for reasons not yet explained, it took out at least $400,000 and shifted it into certificates of deposit.
This came shortly after the department’s treasurer, Terri Gaines, was caught skimming about $500,000 from the department’s treasury for personal use and was arrested. She paid it back and was sentenced to three years in prison, but the public deserves an answer to why the Montauk department put so much money into the hands of a private investment fund so soon after it had been burned by Ms. Gaines. This brings into question the ongoing effectiveness of its financial oversight. East Hampton Town’s involvement is more complicated.
At about the same time the Fire Department was getting involved, the Panoramic View began large-scale renovations that should have had painstaking town review. Instead, the Building Department issued permits for conversion of motel units to residences and other changes without routing the project to the Planning Department, planning board, and perhaps even the zoning board of appeals.
In 2008, two town officials, Sylvia Overby, then the chairwoman of the planning board, and Tom Talmage, the town engineer, were alerted to the work going on at the Panoramic and went to have a look. They found renovations that far exceeded what had been described in town files. Speaking later, Ms. Overby, now a member of the town board, said massive changes had taken place but that approvals for the work “never came up through the correct channels.” The only town officials outside of the Building Department who considered any aspect of the conversion were members of the architectural review board, who had been asked to decide on some minor aesthetic changes.
Underlying the problem for the Panoramic’s redevelopers was the fact that the land on which the resort sits is zoned residentially. That means that the motel could remain as it existed, but that plans for any alterations, even if they were less than a conversion or expansion, would, under the law, have to be submitted for site plan review, a process that could have gone on for years. Instead, the owners converted the motel into luxury residences (some still available for short-term rental), re-graded the landscape, and made other improvements without mandated review.
Dan Adams, who in 2010 was the newly hired, get-tough town attorney, said he would look into the matter and stop work, if necessary. But he was ousted within months. At the same time, Tom Preiato, the acting top town building inspector, expressed a view favorable to the Panoramic, saying that only minimal oversight was needed.
Why the Panoramic was allowed to avoid exhaustive review of its plans before approvals were handed out remains unknown. Nor is it known who made the Panoramic’s case in Town Hall. At a time when the recently arrested men were allegedly scrambling for money and trying to beat the clock on their debt, time was money. They had neither.
How it was that East Hampton Town officials helped speed their way is something that must be brought to light. It is now up to current town officials and the district attorney to decide whether to launch their own investigations, which we believe are warranted. Where such large sums of money are concerned, as well as allegations of criminal activity, a hard look at Town Hall’s role can no longer be sidestepped.