Brian Callahan, one of two Long Island men accused Thursday in a $96 million Ponzi scheme, had a strike on his investment advisory record as early as 2006.
Records from financial industry regulators indicate that Callahan was no longer registered as an investment adviser or a broker as of September 2006, after clients at his old employer alleged that he had falsified documents and forged signatures.
In 2009, he consented to be barred from the securities industry as part of a settlement with the Financial Industry Regulatory Authority, or FINRA, which regulates brokers.
Yet Callahan managed to attract money from investors through 2012 as an investment adviser; such investment professionals are generally regulated by the Securities and Exchange Commission, not FINRA. According to an indictment unsealed Thursday in federal court in Central Islip, Callahan raised more than $118 million from more than 40 investors between December 2006 and February 2012 for four investment funds.
Instead of investing the money in hedge funds, as Callahan had told investors, it was funneled to his brother-in-law Adam Manson's real estate project in Montauk, among other places, the lawsuit said.
Many investors do not know that disciplinary records of financial industry professionals are public, said Barbara Roper, director of investor protection at the nonprofit Consumer Federation of America. Such records can be checked at the SEC and FINRA websites.
"One of the few things you can do to insure that you're looking out for your interest is check the background of the people who're running the investment," she said.
The SEC, which typically regulates investment advisory firms with more than $100 million in assets under management, filed a lawsuit against Callahan and Manson in 2012.
Among Callahan's investors were a California teacher, who invested $520,000, and a small-business owner in Kentucky, who invested $2.9 million over four years, according to the SEC complaint.
The Kentucky business owner, who did not find out about the FINRA ban until January 2012, said in the SEC lawsuit that he would not have invested with Callahan had he known of the fund manager's record.