Montauk Fire Department Made $81,000 Ponzi Payback
The Montauk Fire Department was required to pay over $81,000 in 2014 into a receivership fund set aside for the victims of the Ponzi scheme run by Brian R. Callahan and Adam J. Manson, brothers-in-law who pleaded guilty in federal court last year to criminal charges stemming from their operation.
The amount the department agreed to pay was based on the profit it believed it had made from a high six-figure investment into Distinctive Ventures L.L.C. in 2006 or 2007, according to court documents. Various sources have placed the actual amount between $400,000 and $1 million.
The department has not been implicated in any wrongdoing. Calls this week to fire officials went unanswered.
Mr. Callahan and Mr. Manson used the money, along with money from other investors, to finance their purchase of the Panoramic View Resort on Old Montauk Highway. Mr. Callahan pleaded guilty last April to securities fraud and wire fraud; Mr. Manson pleaded guilty in May to a lesser charge of attempted wire fraud. Both men are awaiting sentencing.
A court-appointed receiver, Steven Weinberg of Gottesman, Wolgel, Flynn, Weinberg & Lee, P.C., reported the fire department’s 2014 payment to a federal judge in Central Islip District Court on Jan. 30. “The Montauk Fire Department repaid investor funds in the amount of $46,690 in the first quarter of 2014, and $34,970 during the fourth quarter of 2014,” he told Judge Arthur D. Spatt. He indicated he had first contacted the department in the fall of 2013 during his “claw-back” investigation, alerting fire officials that the profit they had received would need to be returned, plus interest.
Judge Spatt is overseeing the civil side of the government’s action against the brothers-in-law, in tandem with the criminal proceedings.
The Montauk department pulled out of its investment early, on a date not given, when members became suspicious, questioning what they were actually investing in. The department was among the few investors who not only got their money back but made a profit, which, however, essentially consisted of stolen funds.
According to Mr. Weinberg’s report, Mr. Callahan was running a Ponzi scheme, taking money from one innvestor to pay another, like the Montauk department, that had asked for its money back. Mr. Weinberg said Mr. Callahan ran the scam from 2005 until the Securities and Exchange Commission closed in on him in early 2012.
“Defendant Callahan failed to maintain investor funds in liquid segregated accounts, and indiscriminately used comingled investor funds to satisfy redemption requests,” Mr. Weinberg told Judge Spatt.
The receiver’s report listed 67 individuals, trust funds, and banks that were victimized. The amounts the investors were defrauded of ranged from a low of $10,000 to a high of over $18 million.