Two Hamptons people lost important court cases last week and will suffer the consequences. One will go to jail. The other may have to pay more than a million dollars.
The two cases appear to have something in common, however. And what is in common should be a lesson to us all. My Uncle Ed told me this long ago. If they’re playing poker in the kitchen, don’t be in the living room.
The first case is a criminal case involving the Panoramic, a grand resort of 117 units on the ocean in Montauk. The French family owned it for more than a half-century, but in 2006 sold it to an investment company run by two men who happen to be brothers-in-law.
In 2010, my wife and I got a tour of the place under reconstruction from one of these men, Adam Manson, age 42. The dirt was flying. But it was out of season and the place was not open.
Manson was passionate about the project. They were re-modeling the half-dozen residence buildings on the hillside going down to the beach, one by one. They’d be able to stay open while doing this. After spending as much as $30 million on the initial purchase, when they were done, the resort would be stunning.
Because this resort was built before zoning, however, they’d have to keep the footprint and silhouettes of all the buildings the same or modified only slightly from where they were before, with the Town Building Department watching every step of the way. The buildings were grandfathered in. So they would have to do that.
“For example,” Manson told me, “we needed roofs to be brought up to state code. They need to have a 40-degree pitch. Some of these have 30-degree pitches. We couldn’t raise the peaks, so we lowered the sides. But we also got permission to build a series of small dormers with narrow windows in them at 30 degrees where the roof had been before. It creates a small high window that brings in more light, and it was approved by the Architectural Review Board.”
There would no longer be more than 100 units. Units would be combined and there would be 68. They would sell, co-op fashion, for more than $1.5 million each. We got to see some of these units, and they were indeed beautiful.
Manson seemed fully engaged in this project. His partner, Brian Callahan, held down the home office in Great Neck. Their firm name was Distinctive Ventures.
Now, I can’t be sure of everything behind what I’m about to tell you, because Manson pled guilty to a crime last week and the evidence will never be released because this is a plea deal, but what seems to have happened is this:
While Manson was toiling away in Montauk, his brother-in-law and partner Brian Callahan was running a Ponzi scheme out of another office, which in the end totaled more than $100 million. He was convincing wealthy people to let him manage money in his investment fund (there were actually four funds), and instead of making investments and paying the interest and dividends to the investors, he simply paid off the early investors with the money given him by new investors. At one point, the Montauk Fire Department invested with the company. Although, after they felt uneasy about it for some reason, the company returned what they had invested.
Callahan pleaded guilty in April to one count of securities fraud and one count of wire fraud and faces up to 40 years in prison. Manson, who we met, initially pled not guilty to his charges, claiming he did not know anything about the Ponzi scheme. Prosecutors said, however, that he lied to an auditor and helped create false documents. And so for his transgressions, Manson finally pled guilty to “conspiracy to commit securities fraud.” He will be sentenced to up to five years in prison.
The Panoramic, now called the Panoramic View Resort & Residences, continues under renovation and is meanwhile open for business and looking mighty good if you ask me, as we saw it over the weekend from the street. Manson, in his plea deal, will forfeit all unsold units at the property, which are valued at $60 million, plus an additional $3.9 million in criminal proceeds. Manson and Callahan may also have to repay approximately $96 million in restitution to those who lost money in the scheme.
The second case was a civil matter involving the longtime East Hampton Town Justice Catherine Cahill. In 2005, while she was adjudicating cases on the bench here, her husband, attorney Marvin Hyman, was doing a deal buying and selling land in the Buckskill section of East Hampton, hoping to make a profit. It was a matter of several million dollars. In 2003 Hyman had gone into partnership with Nelson Gerard involving this land, and then got a buyer to pay $1.9 million for part of the parcel—a deal that Gerard said was done without his knowledge.
As this was happening, Hyman learned he was terminally ill. As it happened, according to the case, he figured a way to take nearly all of the $1.9 million and transfer the funds to a joint account he had with Cahill. According to court documents, Hymen felt he was entitled to do this in the agreement with Gerard because what was being sold was for the preservation of part of the parcel, and that was not in his agreement with Gerard. He died on December 15, 2005.
Gerard sued, and, last week, after all these years, a judge ordered Cahill, who is no longer a judge, to pay back $1,045,400 to Gerard, plus interest, which could bring the total to be paid to about $2.25 million.
It was not exactly that all this was hanging over Justice Cahill during her term in office, which was from 1993 to 2013. The public knew something about it but it did seem to be a case of he said, she said.
Now the court has ruled. Mr. Hyman “deliberately and stealthily carried out his plan to spirit away the process of the sale out from under the nose of his partner,” the decision reads.
In a 2007 deposition, Mrs. Cahill, who is also a lawyer, refused to answer questions about whether she knew what was going on, claiming spousal privilege. She did later on say her husband told her that he did not agree to anything.
An attorney for Mr. Gerard spoke to the court about spousal privilege and said basically that in business matters such as this, a wife or husband can’t hide behind that if it was some business matter that could be openly discussed with anybody.
The judge said, “the court finds Cahill’s testimony as a whole to be not credible…Cahill’s professed ignorance on matters fully within the comprehension of any lawyer or judge is not credible.”
Cahill will be appealing.
Stay sharp. If it doesn’t look right, don’t make assumptions. If you hear people talking softly in the kitchen, make sure you get in there and find out what’s going on. After that, you can decide what to do.