Will Panoramic Ever Be Sold? Mortgage Holders Couldn’t Care Less

The victims of a Ponzi scheme involving Montauk’s Panoramic View resort have waited three years now for the property to be sold, and they are waiting still, losing thousands of dollars every day from the fund established to pay them back. The money that should have been theirs is instead piling up in interest to the holders of the resort’s mortgages, a bank and a real estate investment trust.

Last Thursday the court-appointed receiver in the case, Steven Weinberg, whose task is to manage the funds earmarked for restitution, reported to the federal judge in charge that the 67 claimants are out about $100 million to date. Interest paid to the mortgage holders is not the only factor eating away at their money. In the first quarter of this year, Mr. Weinberg reported, expenditures required to maintain the fund totaled $272,000. 

Responsibility for the sale of the Panoramic lies with the office of the United States Attorney for the Eastern District of New York, which seized the property in 2012 after the Securities and Exchange Commission froze the assets of its two owners, Brian Callahan and Adam Manson, including 11 unsold cooperative units at the oceanfront facility. Mr. Callahan, an investment fund manager, “used six offshore entities to perpetrate one of the largest investment frauds in Long Island history,” said Loretta Lynch, the U.S. Attorney for the Eastern District at the time and now Attorney General of the United States. “Through lies and deceit, he misled investors and stole investor funds, including money from the Montauk Fire Department, which the department got back after thinking better of it, “to operate a multimillion-dollar Ponzi scheme.”

The failure to sell the resort has twice delayed the sentencing of Mr. Callahan and Mr. Manson, his brother-in-law, both of whom pleaded guilty to the charges. They are scheduled to return to U.S. District Court in Central Islip on May 29, but sentencing is likely to be postponed again, according to Mr. Manson’s attorney.

Three days before her swearing-in as attorney general, Ms. Lynch signed off on a stipulation with Mr. Manson in which the financial terms of the eventual sale were laid out. According to that document, the real estate investment trust, Annaly Capital Management, which holds the notes from the original loan enabling the men to buy the Panoramic in 2007, will have its principal paid in full upon completion of the sale, a sum of almost $13 million. Annaly will be paid another $5.55 million in interest accrued as of the date of the stipulation, plus $4,382 interest per day from that day on. Another interest payment of $1.75 million will come due upon final sale.

All this money will come out of the proceeds from the sale, with the remaining change going to the receivership for the victims. (Annaly will also be paid back for last year’s real estate taxes, almost $123,000.)

The privately held Gibraltar Bank, which loaned the brothers-in-law money to cover a payment on the original mortgage, will receive over $2 million in principal plus $143,064 in interest, with another $334 being added to the tab every day.

In past quarters, Mr. Weinberg has reported to the court funds recovered from investors in the Ponzi scheme who pulled their money out early, called clawbacks. The Montauk Fire Department was among them; it was required to pay back over $81,000 to the fund last year. Also, the receiver liquidated assets belonging to Mr. Callahan and Mr. Manson in the past. Those streams of income appear, however, to be drying out. There was $6.6 million left in the fund as of March 31.

That the sale of the Panoramic has taken so long is not for lack of interest, Mr. Weinberg told Judge Arthur D. Spatt. “Various people and entities have made, and continue to make, inquiries with and expressed interest to the receiver,” he Mr. Weinberg wrote. “The inquiries and interest in the property did not wane, but remained steady.” 

In early 2013, for example, Mr. Weinberg negotiated a letter of intent to sell the resort to HFZ Capital Group, headed by Ziel Feldman, partnering with BSG Real Estate, for a little over $54 million. The letter was accepted by the U.S. Attorney’s Office, Eastern District, on April 9, 2013, which then applied to Judge Spatt to be allowed to sell the property. Judge Spatt did not rule on the application, however, until February 2014. 

At that time, he granted Ms. Lynch’s office the right to conduct a sale, but he rejected HFZ as the buyer. “In this regard, HFZ-BGS’s $54.15 million offer falls toward the lower end of the estimated $52 million to $88 million value of the Montauk Property,” Judge Spatt wrote in his decision.

In the meantime, Mr. Weinberg negotiated a second sale to HFZ, this one for the notes issued by Mr. Manson for the Panoramic property under the name Distinctive Notes. HFZ, the receiver reported to Judge Spatt, was working in conjunction with Gurney’s Spa, which is immediately east of the Panoramic. This sale, Mr. Weinberg told Judge Spatt, had several advantages for the Ponzi victims over the deal the Eastern District Office had put before the court. 

“None of these offers were subject to any brokerage fees, payments of taxes, fees or closing costs, payments or the removal of any liens or claims . . . the full offering price was to be paid to the receivership estate,” he wrote. The net effect would be an additional $5.5 million or more for the victims. 

For the buyer, it would be a two-step process; first to acquire the notes and then to negotiate with Annaly and Gibraltar. It was a path HFZ was willing to go down.

The U.S. Attorney’s office not only rejected the proposal, but wrested control of the notes from the receivership. From that point on, the government was committed to selling the Panoramic through a blind bidding process.

Nothing describing the bidding package, or the process itself, has been put online by the Eastern District Attorney’s office, which, said Mr. Weinberg, stopped supplying updates to him last October. In an addendum to the stipulation, the office explains that “the Bid Package is not being electronically filed in order to maintain control over its distribution to prospective purchasers.” 

When the office, now headed by Acting U.S. Attorney for the District Kelly T. Currie, was asked to elaborate, the caller was told that that sentence was as much of an explanation as was going to be given.