Repeat Offender

Brian Raymond Callahan was a repeat offender, as is so often the case with white collar crime. In 2009, the Financial Regulatory Industry Authority barred him from associating with any FINRA member, so he went the investment adviser route instead. In early March, the Securities and Exchange Commission charged Callahan with defrauding at least two dozen investors of more than $74 million.

Callahan used the funds to pay other investors, to prop up his brother-in-law's Long Island beach resort project, which was facing foreclosure, and to make a down payment on the $3.35 million unit he purchased in that resort. He promised the investors he would put their funds in liquid assets, but gave them unsecured, illiquid promissory notes instead. The notes allowed him to hide his misuse of investor funds, to overstate the assets he was managing, and inflate his management fees by 800 percent or more.

According to the SEC's complaint, Callahan refused to testify in the SEC's investigation, while telling his investors about the investigation and assuring them no laws had been broken. A court granted the SEC a temporary restraining order to freeze the assets of Callahan and his advisory firms.

Will he strike again?

Faking It

James Michael Murray wanted better performance with which to wow clients and prospects. He just didn't want to have to work for it — at least, not the hard way. Instead, the San Francisco-area investment advisor embellished the performance of his Market Neutral Trading fund (MNT), a purported hedge fund that claimed to invest primarily in domestic equities, and provided clients with a fake audit report to back up the fake performance, according to SEC charges.

The SEC alleges that Murray raised more than $4.5 million from investors in his various funds, including MNT, and provided MNT investors with a report prepared by Jones, Moore & Associates (JMA), an auditor he claimed was independent. But JMA is not a legitimate accounting firm, says the SEC. It is a shell company Murray secretly created and controlled.

Murray faked other details as well. JMA is not licensed as an accounting firm in Delaware, where it purports to do business. JMA's website was paid for by a Murray-controlled entity, and listed 12 professionals with specific degrees and licenses who supposedly work for JMA, at least five of whom do not exist.