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A former real estate private equity firm CEO has been sentenced to five years in prison for fraudulently convincing hundreds of investors to collectively put $58M into funds he controlled.
Eric Malley, the CEO and founder of MG Capital, was sentenced this week by U.S. District Court Judge Edgardo Ramos for securities fraud. He pleaded guilty in May.
Prosecutors said Malley had solicited the investments for two real estate funds between 2013 and 2019 — largely by falsely claiming he had successfully previously established two funds that had never existed. In all, prosecutors said he defrauded 335 investors.
“For years, Eric Malley swindled investors through false promises about himself, his credentials, his track record, and the state of his real estate investment funds,” U.S. Attorney Damian Williams said in a statement. “Today’s sentence sends an important message that there are grave consequences to such deception.”
Malley had created MG Capital Management Residential Fund III in 2014 and MG Capital Management Residential Fund IV in 2017. He claimed the funds had hundreds of income-producing properties across Manhattan, that were debt-free and were set to be leased to tech firms and a university. In truth, the funds had only mortgaged properties that had leases with individuals rather than corporations.
They also had fewer properties than he claimed, and they were not fully protected from loss as he had promised. About 60 investors put $23M in Fund III, and approximately 275 investors backed Fund IV for $35M. Fund III suffered net operating losses of about $860K, and its investors never received anything back.
Malley distributed at least $278K to himself in his capacity as general partner of that fund, the U.S. Attorney's office said. The holdings are now being liquidated. Malley will also have to make restitution payments of $33.2M and forfeit $5.6M.
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