Brian R. Callahan, an investment banker and Adam J. Manson, a real estate developer, has been recently charged by a New York court in a case that saw their $96 million Ponzi scheme unearthed. Both defendants were slapped with fraud charges relating to the operations that they were involved in running their Ponzi scheme. As a result of these charges, the government seized $1 million that had the defendants because this money was suspected to be part of the loot that they directly obtained in their various criminal engagements (Miller & Whitehaed, 2011). In addition to that, the defendants’ stake in the famous Panoramic View Resort & Residences was also taken over by the authorities as part of the ongoing investigation into their alleged criminal activities.
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The prosecution team was led by Lorretta E. Lynch who was the prosecuting attorney, George Venizelos, an FBI agent, and Toni Weirauch, an agent with the IRS. The investigations unearthed the role of the two defenders in establishing and running the scheme. Callahan was the one involved in the formation and running of the scheme. Through the use of fraudulent means, Callahan was able to obtain an amount of $118 million from a group of 40 investors after promising them that he would invest this money in mutual funds, hedge funds, and other securities that would enable this investment to realize significant growth. However, instead of investing this money as promised, Callahan misappropriated a large portion of it, $96 million to be precise (Miller & Whitehaed, 2011).
Some of this amount was used to set up the Ponzi scheme while the rest was diverted into the Panoramic View, an investment that was owned by both Callahan and his brother. Despite the unprofitable nature of the Panoramic View, which is a development consisting of several beachfront apartments, Callahan and Manson went ahead and sunk millions of dollars in this unprofitable investment, an act that resulted in significant losses on the part of investors. Just like any other typical Ponzi scheme, Callahan operated his scheme by taking money from one investor and giving it to the other as a form of return on investment. He also utilized some of the money for purchasing luxurious homes and cars. To ensure that he covered his tracks, Callahan furnished his investors with a fake statement of accounts that showed a positive trend as far as the performance of their investments was concerned (Miller & Whitehaed, 2011).
As part of her submission, the prosecuting attorney pointed out that the two defendants took advantage of the good reputation that Panoramic View enjoyed. This association with Panoramic View brought many investors who regarded it as a serious investment on board. However, the investors did not know that this investment had failed to generate any returns for an extended period (Miller & Whitehaed, 2011). In addition to that, the attorney also pointed out that to effect this Ponzi scheme, the two defendants were involved in multiple acts of forgery where they forged various documents including the fake statements of accounts, misrepresentation to both the investors and auditors regarding the performance of the company and other criminal acts that went as far as committing identity theft. Through the careful and concerted input of various regulatory authorities including the Securities and Exchange Commission and the British Virgin Island Financial Investigation Agency, these criminal activities were unearthed and the perpetrators unmasked.
On his part, Venizelos, the FBI agent, testified that the activities of Mr. Callahan and Mr. Manson amounted to a great violation of clients’ trusts. This is attributable to the fact that they knowingly obtained money from their clients using fraudulent means with the promise of investing the money into meaningful investments. Instead, the two used this money for the advancement of their interests that saw them invest the money into their unprofitable outfit. In addition to that, Callahan used part of the money to purchase luxury items for himself. To cover their tracks, the IRS agent asserted that the two defendants employed the use of sophisticated methods to hide their tracks and avoid detection by the IRS and other authorities (Zuckoff, 2005). However, through the input of various agencies including the FBI, the US Attorney’s office, and the IRS itself, the criminal activities of the defendants were unearthed.
There have been increased incidences of Ponzi schemes in the US and also in other parts of the world. Such schemes are illegal due to the nature of their operation, and this is because Ponzi schemes usually do not involve any meaningful investment, instead, the scheme managers usually obtain money from one ‘investor’ and give it to another misrepresenting it as a return on investment (Zuckoff, 2005). In most cases, the investors are normally not aware of the activities that go behind the scene in most Ponzi schemes because no investor in their right mind would put their money in a non-existent investment, which is essentially what Ponzi schemes are. Just like in Callahan and Manson’s case, most Ponzi schemes operate under the guise of mutual funds where the managers pretend to be involved in securities and other such investment models that are not easy to trace by most common people.
Due to enhanced policing in many developed nations, Ponzi schemers are getting sophisticated in their operations and there are increasingly looking for ways to avoid detection by law enforcement agencies. The scheme put in place by Callahan and Manson was one such scheme (Frankel, 2012). This is because the two brothers managed to run their outfit undetected for extended periods, 2006 to 2012 to be precise, without getting caught by the authorities. They employed the use of various sophisticated techniques that enabled hem to avoid detection by the IRS, FBI, and other such authorities during the entire period enabling them to collect millions of dollars from unsuspecting investors. However, just like any other Ponzi scheme, Callahan and Manson’s activities were not backed up by any meaningful investment, and such an arrangement is bound to fail sooner rather than later (Frankel, 2012). The activities of the two brothers were unearthed enabling the authorities to bring them to justice. All in all, Callahan and Manson just like other Ponzi schemers, displayed intense selfishness in their dealings. They took most of their clients’ hard-earned money and invested in their unprofitable outfit without any regard to how such a move would impact their clients’ investment and this resulted in significant losses on the part of the client.
Frankel, T. (2012). The Ponzi Scheme Puzzle: A History and Analysis of Con Artists and Victims. New York: Cengage Learning.
Miller. L. S., & Whitehead, J. T. (2011). Report writing for criminal justice professionals (4th ed.). Burlington, MA: Anderson Publishing.
Zuckoff, M. (2005).Ponzi’s scheme: the true story of a financial legend. Boston: John Wiley & Sons.