NEW YORK INVESTMENT ADVISER CHARGED WITH FRAUD

The following excerpt is from the SEC website:

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

On March 5, 2012, 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. 

The Commission acknowledges the assistance of the British Virgin Islands Financial Services Commission and the Bermuda Monetary Authority.

SEC ALLEGES A $14,380,000 PROMISSORY NOTE FRAUD

The following excerpt is from the SEC website:

January 30, 2012
"The Securities and Exchange Commission announced today that on January 25, 2012 U.S. District Judge Ruben Castillo entered judgments against Arthur Lin (“Lin”) and his wife, Relief Defendant Gloria Lin. The SEC’s complaint, filed in the U.S. District Court for the Northern District of Illinois, alleges that from at least September 2006 through at least January 2009, Defendants Marcin Malarz (“Malarz”), Jacek Sienkiewicz (“Sienkiewicz”), and Lin raised at least $14,380,000 from at least 43 investors through the fraudulent unregistered offer and sale of promissory notes issued by entities owned and controlled by Malarz and/or Sienkiewicz. Malarz Equity Investments, LLC (“Malarz Equity”) was the primary entity through which the scheme was perpetrated. Gloria Lin was a member of Malarz Equity, and Lin was an officer of Malarz Equity. The complaint alleges, among other things, that investors were told that their funds would be used to purchase apartment complexes and rehabilitate and convert the individual apartment units for sale as condominiums. The complaint alleges that contrary to these representations, Malarz used substantial sums of the Malarz Equity investors’ funds for his personal benefit and to make ponzi-type “interest” and principal payments to previous investors. Further, Lin received at least $436,000 in undisclosed commission payments, which were transmitted to Relief Defendant Gloria Lin.

To resolve the Commission’s charges, without admitting or denying the allegations of the complaint, Lin consented to the entry of a judgment permanently enjoining him from violating Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933, and Sections 10(b) and 15(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and ordering disgorgement of $436,000 and prejudgment interest of $49,583, but waiving payment of all but $158,240 in disgorgement and prejudgment interest and not imposing a civil penalty, based upon Lin’s representations in his sworn statement of financial condition dated August 16, 2011. Without admitting or denying the allegations of the complaint, Gloria Lin consented to the entry of a judgment ordering her jointly and severally liable for the disgorgement amount owed by Lin. The Lins are required to pay $43,500 within 14 days of the entry of the final judgments and the remaining $114,740 within 1 year of the date of entry of the final judgments plus post-judgment interest thereon.”
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