A former co-owner of a Montauk resort who federal prosecutors said perpetrated one of Long Island’s largest Ponzi schemes was sentenced Friday in federal court in Central Islip to 12 years in prison and ordered to pay $67.6 million in restitution.
Brian R. Callahan, 48, — an investment adviser from Old Westbury who pleaded guilty in 2014 to securities and wire fraud — was ordered by U.S. District Judge Arthur D. Spatt to surrender to authorities on Nov. 27 to begin serving his sentence.
“I think Mr. Callahan was just stunned,” Callahan’s attorney, Roland Riopelle of Manhattan, said after the sentencing.
The 12 years Callahan received was far lengthier than a sentence of a year and a day that Riopelle had requested, but fell short of the sentencing guidelines of 151 to 188 months that Assistant U.S. Attorney Christopher Caffarone had asked for.
According to the indictment, Callahan raised more than $100 million from 40 investors, falsely claiming that he would put their money in different funds he operated that supposedly invested only in mutual and hedge funds and securities such as stocks and bonds.
Instead, Callahan used the money to repay existing investors, fund a lavish lifestyle, and pay the debts on the Panoramic View Resort & Residences, an oceanfront property he and his brother-in-law, Adam Manson, bought in 2007.
Thomas Claus, 43, one of the investors Callahan defrauded, drove from his home in Milwaukee to Long Island for the sentencing. Claus said his family lost $905,000, a sum he and his brother inherited when their father died 15 years ago. The money, Claus said, was supposed to be invested to generate incomes to support their 77-year-old mother, Mary.
“It’s all gone,” Claus said in an interview outside Judge Spatt’s courtroom.
Another investor, Jerry Ostry, 61, of Orlando, Florida, who said he lost $2 million, brought his daughter and son, 10-year-old twins, to Spatt’s courtroom to show that Callahan’s crimes harm investors and their families.
Ostry, who has cancer, said he lost his Palm Beach house to foreclosure and couldn’t afford private school tuition for his autistic son, Martin, or pay for services he needs.
The children told Spatt that it wasn’t fair that they had to suffer because of Callahan’s greed.
“I don’t know who is going to take care of me if he dies,” Martin told Spatt.
Among the investors was the Montauk Fire Department, which had initially invested its $600,000 scholarship fund. But department officials had said they were suspicious of Callahan’s operation and pulled their money without a loss before the scheme collapsed.
Investors are expected to get some of their money back.
Of the $67.6 million in restitution, officials have recovered about $50 million, including $40.3 million from the sale of the Panoramic View Resort & Residences. The money will be distributed to the 40 victims.
Manson, who pleaded guilty in 2014 to one count of conspiracy to commit securities fraud, is expected to be sentenced to 5 years in prison later this month.
Officials said Manson, Callahan’s brother-in-law, lied to accountants auditing Callahans’ funds and provided the accountants with phony promissory notes that inflated the value of the funds.
Correction: An earlier version of this story had incorrect sentencing guideline numbers, which are 151 to 188 months.