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.