SEC CHARGES INVESTMENT ADVISER WITH USING INVESTOR MONEY TO BUY LONG ISLAND BEACH PROPERTY

The following excerpt is from the SEC website:

SEC Obtains Asset Freeze Against Long Island Investment Adviser Charged with Defrauding Investors
“Washington, D.C., March 6, 2012 – The Securities and Exchange Commission today announced it has charged a New York-based investment adviser with 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.

The SEC alleges that Brian Raymond Callahan of Old Westbury, N.Y., raised more than $74 million from at least two dozen investors since 2005, promising them their money would be invested in liquid assets. Instead, Callahan diverted investor money to his brother-in-law’s beach resort project that was facing foreclosure, and in return received unsecured, illiquid promissory notes. Callahan also used investor funds to pay other investors and make a down payment on the $3.35 million unit he purchased at his brother-in-law’s real estate project.

According to the SEC’s complaint filed yesterday in federal court in Islip, N.Y., Callahan operated the five funds through his investment advisory firms Horizon Global Advisors Ltd. and Horizon Global Advisors LLC. He used the promissory notes to hide his misuse of investor funds. 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 percent or more.

“Callahan misled investors in his funds with false promises, and he enriched himself at their expense when he diverted fund assets for his personal use and pocketed inflated management fees,” said Antonia Chion, Associate Director in the SEC’s Division of Enforcement.

According to the SEC’s complaint, 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 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 financial penalties.
At the SEC’s request, and after a court hearing yesterday, 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 SEC’s investigation has been conducted by Holly Pal, Linda French, Osman Handoo, Ann Rosenfield, Natalie Lentz and Lisa Deitch of the SEC’s Division of Enforcement. The SEC’s litigation is being led by Dean Conway.

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

$230 MILLION RETURNED TO U.S. WHILE PONZI SCHEME INVESTIGATED

The following excerpt comes from the SEC website:

"Washington, D.C., June 28, 2011 — The Securities and Exchange Commission today told a federal court that $230 million held in an offshore account by a hedge fund has been returned to the U.S. and will remain frozen pending completion of the SEC’s Ponzi scheme lawsuit against the fund’s adviser and its principal.

In a filing in the U.S. District Court for the District of Connecticut, the SEC said the money was returned as a result of the court order obtained by the SEC in its case against Francisco Illarramendi of Connecticut and his firm Highview Point Partners LLC, which managed three hedge funds.

“We’re pleased with the return of this money to the U.S. and believe it will help preserve these assets for the benefit of defrauded investors,” said David P. Bergers, Director of the SEC’s Boston Regional Office.

Ethiopis Tafara, Director of the SEC’s Office of International Affairs, added, “In this case, the ability to freeze and repatriate the alleged financial crime proceeds was critical to the SEC’s effective enforcement of the U.S. securities laws.”

The SEC charged Illarramendi and his unregistered investment advisory firm MK Capital Management in January with running a multi-year, multi-million dollar Ponzi scheme. Stamford, Conn.-based Highview was added as a defendant in May. Three hedge funds managed by Highview and several entities affiliated with MK Capital Management were named as relief defendants for allegedly holding funds tainted by the Ponzi scheme.

After an evidentiary hearing, the Honorable Janet Bond Arterton, U.S. District Judge for the District of Connecticut, entered an order on June 16 freezing the assets of three hedge funds and ordering that all assets of the funds, including $230 million held in an offshore account, be immediately returned to the U.S.

Judge Arterton had previously frozen the assets of Illarramendi, Highview, MK Capital Management, and several affiliated entities.

In its filing today, the SEC informed the court that the $230 million was received last week and is being held in a bank within the U.S.

The SEC charges Illarramendi, Highview, and Michael Kenwood Capital Management with violating Sections 206(1), 206(2) and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder, and also charges Highview with violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The following entities are named as relief defendants, alleging that they received investor funds to which they have no right: Highview Point Master Fund, Ltd., Highview Point Offshore, Ltd., and Highview Point LP, Michael Kenwood Asset Management LLC, Michael Kenwood Energy and Infrastructure LLC, and MKEI Solar LP. In addition to preliminary emergency relief, the SEC seeks permanent injunctions, disgorgement of ill-gotten gains plus interest and penalties from the defendants, and disgorgement plus interest from the relief defendants.

Last year, the SEC returned more than $2.2 billion to harmed investors through financial recoveries in SEC enforcement actions.

Carlos J. Costa-Rodrigues, Sofia T. Hussain, Michelle Perillo, and LeeAnn Ghazil Gaunt of the SEC’s Boston Regional Office conducted the investigation following an examination conducted by Zerubbabel Johnson, Stephen M. Latin, Michael D. O’Connell, and Elizabeth Salini. Timothy Geishecker of the SEC’s Office of International Affairs assisted with the investigation. The SEC’s litigation effort is being led by Rua M. Kelly and Kathleen B. Shields. The SEC’s investigation is ongoing."