SEC Charges Real Estate Fund Manager With Misappropriating Over $7 Million From Retail Investors
Washington D. C. ,
Jan. 12, 2021 —
The Securities and
Exchange Commission today charged fund manager Eric C. Malley and his
company MG Capital Management L. P. with defrauding retail investors
in two real estate funds managed by MG Capital.
According to
the SEC’s complaint, beginning in 2014, Malley – a licensed real
estate broker with no investment management experience – and MG
Capital solicited investments in two real estate funds, MG Capital
Management Residential Funds III and IV, respectively, raising a total
of $58 million primarily on the strength of a fabricated investment
track record. The complaint alleges that in marketing Funds III and
IV, Malley and MG Capital falsely claimed that they had previously
managed two highly-successful real estate funds with a combined
portfolio value of $1. 18 billion that had significantly outperformed
the S&P; 500 Index over a 10-year period when, in fact, those prior
funds never existed. As alleged, Malley and MG Capital made numerous
other misrepresentations in their marketing materials and offering
documents, including claiming that investors’ capital was “100 percent
protected from loss” and secured by a non-existent $250 million
balance sheet and that they had partnerships with hundreds of
prospective tenants with pre-signed, multi-year lease agreements.
Finally, the complaint alleges that Malley and MG Capital
misappropriated more than $7 million in investor assets while using
falsified financial reports to conceal huge losses that ultimately
forced the two funds into wind-down.
“As alleged in the
complaint, Malley and MG Capital defrauded investors who thought they
were entrusting their money to a fund manager with a long and
successful track record,” said Richard R. Best, Director of the SEC’s
New York Regional Office. “This case demonstrates our commitment to
hold accountable perpetrators of offering frauds for the harm they
inflict on retail investors. ”
The SEC’s complaint, filed in
U. S. District Court for the Southern District of New York, charges
Malley and MG Capital with violations of the antifraud provisions of
Section 17(a) of the Securities Act of 1933 and Section 10(b) of the
Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The
complaint also charges Malley with aiding and abetting the violations
of MG Capital and violating the control person provision of Section
20(a) of the Exchange Act. The SEC seeks injunctive relief, civil
penalties, and disgorgement of ill-gotten gains plus prejudgment
interest.
The SEC’s investigation was conducted by Celeste A.
Chase, Derek M. Schoenmann, Ibrahim Sajalieu Bah, Todd D. Brody, and
Neil B. Hendelman of the New York office. The SEC’s litigation will be
led by Mr. Brody, Mr. Schoenmann, and Mr. Bah, and the case is being
supervised by Lara Shalov Mehraban. The SEC appreciates the assistance
of the U. S. Attorney’s Office for the Southern District of New York
and the Federal Bureau of Investigation.