United States District Court, E.D. New York
States Attorney's Office, Eastern District of New York
Attorneys for the United States By: Christopher Charles
Caffarone, Assistant United States Attorney, By: Alicyn L.
Cooley, Assistant United States Attorney, Brian D. Morris,
Assistant United States Attorney, Karin K. Orenstein,
Assistant United States Attorney, Shannon Cassandra Jones,
Assistant United States Attorney, Of Counsel.
James Frisch, Esq., Attorney for the Defendants
MEMORANDUM OF DECISION & ORDER
D. SPATT UNITED STATES DISTRICT JUDGE.
Brian R. Callahan (“Callahan”) and Adam J. Manson
(“Manson”) (collectively, the
“Defendants”) pleaded guilty, pursuant to plea
agreements, to crimes relating to the operation of a
large-scale Ponzi scheme. The Court sentenced Callahan to 144
months incarceration, which he began serving in January 2018.
Manson's sentencing hearing is upcoming.
before the Court are several motions by the Defendants
pertaining to their sentencing, namely: (1) a motion by
Callahan to vacate his sentence pursuant to 28 U.S.C. §
2255; (2) a motion by Manson to compel specific performance
by the Government of his plea agreement; (3) a motion by
Manson to disqualify the United States Attorney's Office
for the Eastern District of New York, in favor of prosecution
by another United States Attorney's office; and (4) a
motion by Manson to preclude Jerry Ostry
(“Ostry”), a victim, from testifying at his
following reasons, the Court denies the Defendants'
motions in their entirety, except it will permit the
cross-examination of Ostry by defense counsel at Manson's
2005 and 2012, Callahan operated a large-scale Ponzi scheme.
He took money from investors purportedly to invest in hedge
funds, stocks, bonds and other investment vehicles. However,
unknown to investors, Callahan used those funds to pay
redemptions to prior investors; to pay himself $6 million;
and to purchase and renovate the Panoramic View, a
cooperative development in Montauk, New York, for the sum of
$38 million, in which he, personally, had a 50% ownership
Callahan's brother-in-law, assisted Callahan in carrying
out the scheme by, among other things, handling the purchase
of the Panoramic View with investor money; lying to banks in
connection with that transaction; and lying to auditors in
order to enable Callahan to continue defrauding investors.
their conduct, a grand jury sitting in the Eastern District
of New York on July 31, 2013 returned a 19-count indictment
charging Callahan and Manson variously with securities fraud,
wire fraud, conspiracy to commit securities fraud, conspiracy
to commit wire fraud and aggravated identity theft.
April 29, 2014, Callahan pleaded guilty, pursuant to a plea
agreement, to securities fraud and wire fraud, in violation
of 15 U.S.C. §§ 78j(b) and 78ff and 18 U.S.C.
§ 1343, respectively. Paragraph 2 provided the
Government's estimate of the applicable United States
Sentencing Guidelines (the “Guidelines”),
including a loss enhancement of more than $50, 000, 000 but
less than $100, 000, 000, resulting in a Guidelines range of
imprisonment of 235 to 293 months. In exchange, the
Government agreed (1) to dismiss the remaining counts in the
indictment, (2) not to bring further criminal charges against
Callahan for his defrauding investors, auditors, banks and
the Internal Revenue Service, (3) to take no position
concerning where within the Guidelines range determined by
the Court the sentence should fall, and (4) to make no motion
for an upward departure under the Guidelines.
12, 2014, Manson pleaded guilty, pursuant to a plea
agreement, to one count of conspiracy to commit securities
fraud, in violation of 18 U.S.C. § 371. Similar to
Callahan, Manson's plea agreement included, as part of
its Guidelines estimate, a loss enhancement of more than $50,
000, 000 but less than $100, 000, 000, resulting in an
estimated Guidelines range of imprisonment of 121 to 151
months imprisonment. However, because the statutory maximum
for the offense of conviction was five years imprisonment,
the advisory Guidelines range became 60 months.
December 16, 2015, the United States Probation Department
(“Probation”) prepared and submitted the
Presentence Investigation Report (“PSR”).
Probation concluded that Callahan's advisory Guidelines
offense level was 40 and he was in criminal history category
I, resulting in a range of imprisonment of 292 to 365 months.
Probation used Callahan's intended loss of $118.7 million
as its benchmark for calculating the loss amount applicable
to the scheme, ECF 181 ¶ 39, a decision that resulted in
a higher advisory Guidelines range than what had been
estimated in Callahan's plea agreement.
September 5, 2017, ten days prior to sentencing, Callahan
raised three objections to Probation's calculation.
September 13, 2017, the Government filed a response to
Callahan's sentencing submission, which, in relevant
part, objected to Probation's loss figure:
Probation holds the defendant accountable for all the money
that he took from investors-more than $100 million--on the
theory that he was running a Ponzi scheme and therefore
intended to cause that much loss. (PSR ¶ 39.) While that
theory is viable, the government has decided to take a more
conservative approach and will use the actual loss that the
defendant caused. After giving the defendant credit for (1)
net proceeds from the sales of the Panoramic and 47 Clock
Tower, (2) investor monies recovered by the Receiver in the
SEC action, (3) any legitimate market losses and (4)
redemptions paid to investors, the government concluded that
the defendant caused $19.7 million in loss--this is for
Guidelines purposes only, the amount of restitution is $67.6
million. The government calculated the actual loss as
Total money received from investors
Redemptions paid to prior investors
Monies recovered by the Receiver
Net proceeds from sale of 47 Clock Tower
Net proceeds from the sale of the Panoramic
ECF 158 at 3.
the filing of the Government's sentencing letter, on
September 14, 2017, Probation issued an addendum to the PSR
reducing the loss enhancement to $19.7 million.
September 15, 2017, Callahan appeared for sentencing. After
hearing extensive arguments from defense counsel and the
Government regarding the appropriate loss calculation, the
Court rejected Callahan's argument and agreed with the
Government and Probation that Callahan caused $19.7 million
in loss. The Court then permitted Callahan's father, his
wife, a family friend, defense counsel, Callahan, the
Government and several victims to be heard regarding the
appropriate sentence to be imposed. The Court examined each
of the factors set forth in 18 U.S.C. § 3553(a), and
sentenced Callahan to 144 months incarceration-a variance
below the applicable advisory Guidelines range of 151 to 188
appealed from the Court's judgment and challenged his
sentence, arguing, among other things, that the Government
changed its theory of loss in violation of his plea
agreement. On December 28, 2017, the Second Circuit dismissed
Callahan's appeal on the ground that his 144 month
sentence barred an appeal under the waiver of appellate
rights for sentences of 327 months or below in his plea
September 28, 2018, Callahan filed a motion to vacate his
sentence pursuant to 28 U.S.C. § 2255.
19, 2019, the Defendants filed a motion seeking (1) an order
disqualifying the United States Attorney's Office from
prosecuting this case; (2) recusal of the undersigned; (3) an
order requiring enforcement of Manson's plea agreement;
(4) permission to supplement Callahan's September 28,
2018 motion to vacate; and (5) Callahan's immediate
release on bond.
31, 2019, the Court denied the Defendants' motion for
recusal and Callahan's motion for bail pending
habeas review, which the Second Circuit affirmed on
October 9, 2019.
As to Whether the Government Breached the Plea
both defendants pleaded guilty, the procedural posture of
their cases is different. The Court has already sentenced
Callahan, who lost his appeal and now seeks habeas
relief. The Court has not yet sentenced Manson. Consequently,
Manson's claim is one that the Government will breach his
plea agreement at his upcoming sentencing, whereas the
alleged breach of Callahan's agreement has already
occurred. Those agreements provided for an estimated loss
enhancement at sentencing of more than $50, 000, 000 but less
than $100, 000, 000, resulting in a Guidelines range of
imprisonment of 235 to 293 months for Callahan, ECF 196-10
¶ 2, and 121 to 151 months for Manson, ECF 206-6 ¶
Callahan's sentencing, Probation calculated an estimated
loss of $118.7 million, by holding him accountable for all of
the money received from investors, a figure representing the
total intended loss. The Government objected that Callahan
should only be responsible for $19.7 million in losses,
representing the actual losses caused by his scheme,
resulting in an applicable Guidelines range of 151 to 188
months. ECF ...