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The Securities and Exchange Commission has obtained a court order forcing multifamily owner Robert Morgan to pay more than $63M to investors he is accused of defrauding. The money represents a full payback to the investors, many of whom used their retirement accounts to invest with New York-based Morgan.
Last year, the SEC charged Morgan and two of his operations with fraudulently raising money from more than 200 investors, allegedly promising a return of 11%.
Morgan told the investors the funds would be used to make improvements to multifamily assets, but instead he allegedly diverted most of the funds to pay earlier investors, amounting to what the agency termed "Ponzi scheme-like."
When the SEC originally filed its action, it sought emergency relief, including the appointment of a receiver to facilitate recovery of the investors' money. Since then, Morgan has voluntarily liquidated some of his assets to generate the cash necessary to pay his former investors, according to the agency.
At the time of the charges, Morgan and his companies owned more than 140 apartment properties totaling 34,000 units in 14 states.
Though Morgan has been ordered to pay his investors back, the civil case against him for the alleged underlying fraud hasn't been concluded.
The SEC also alleged that Morgan ordered employees to falsify financial documents to get bigger loans for the acquisition of apartment buildings. Many of those mortgages were later bought and resold by Fannie Mae and Freddie Mac, raising questions about the real value of those and other mortgages being traded by the government-sponsored enterprises, The Wall Street Journal reports.
Separately, a grand jury indicted Morgan and three others last year for conspiracy to commit wire and bank fraud for their roles in the mortgage fraud scheme. The defendants also face charges of money laundering.
The criminal case is still pending as well. If convicted, Morgan and the others could receive as much as 30 years in prison and a fine of double the loss caused by the fraud and other crimes. The Justice Department estimates the loss to be more than $25M.
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