NYC Fund Manager Bilked Investors Out Of $58M, SEC Alleges
The former CEO of a New York City investment firm has been accused of fraudulently inducing hundreds of people to invest based on the fictional success of two nonexistent real estate investment funds.
Eric Malley, founder and former CEO of MG Capital Management, has been arrested and charged with securities fraud and wire fraud, the U.S. Attorney for the Southern District of New York announced.
“As alleged, Malley, acting as CEO of an investment firm he founded, solicited investors with material misrepresentations and lies pertaining to luxury residential real estate and several investment funds," FBI New York Assistant Director in Charge William Sweeney said in a statement.
"Ultimately, the investors, many of whom had entrusted Malley with all of their retirement savings, lost nearly everything."
Beginning in 2014, according to a complaint filed by the Securities and Exchange Commission, Malley allegedly solicited investments in two real estate funds, MG Capital Management Residential Funds III and IV, raising a total of $58M. To do so, he said that MG Capital Management Residential Funds I and II had strong track records, when in fact no such funds existed, the complaint alleges.
Malley claimed while marketing the third and fourth funds that the earlier funds had portfolio values of more than $1.1B and had outperformed the S&P 500 Index over a 10-year period, the SEC said. The purported purpose of the funds was to acquire high-end residential units in New York City leased to corporations.
Malley assured investors that the funds were debt-free, but they were not, the government alleges. They held mortgaged properties almost entirely leased to individuals, not corporate tenants.
The company targeted relatively small investors for its funds. In 2018, it set up a platform to make investment easier for small investors, explicitly stating that "first-time investors, including those investing from IRA retirement accounts, have found the new portal easy to understand and navigate."
Malley also allegedly claimed that investors' capital was "100% protected from loss" via something the company called the Capital Protection Provision and that they were secured by a nonexistent $250M balance sheet. He further asserted that prospective tenants had signed multiyear lease agreements at the properties to be acquired, the agency said.
About 60 investors put $23M in Fund III, and approximately 275 investors backed Fund IV to the tune of about $35M. Fund III suffered net operating losses of about $860K, and its investors never received anything back, not even a return of their investments. Malley distributed at least $278K to himself in his capacity as general partner of that fund, the U.S. Attorney's office alleges.
Malley is a licensed real estate broker with no investment management experience, a fact he also lied about, the complaint alleges. MG Capital didn't respond to Bisnow's request for comment.