Eric Malley and MG Capital Management have been charged by the US Securities & Exchange Commission (SEC) with defrauding retail investors in two real estate funds.
According to the regulator’s complaint, Malley was a licenced real estate broker with no investment expertise and MG Capital solicited investments in two property funds, namely MG Capital management Residential Funds III and IV.
They managed to raise $58m (£43m, €47m) based on a fabricated strong investment track record.
The SEC alleges that, while marketing funds III and IV, Malley and MG Capital falsely claimed they had previously managed two highly successful real estate funds with a combined portfolio value of $1.18bn, which significantly outperformed the S&P 500 Index over a 10-year period.
The US regulator said that these funds never existed.
The fund manager and the investment firm also claimed that client investments were “100% protected from loss”, and that they were secured by a “$250m balance sheet”, which was “non-existent”, the watchdog added.
This brought the SEC to charge Malley and MG Capital with misappropriating over $7m in assets from retail investors, while using manufactured financial reports to hide great losses that, ultimately, led to the winding down of the two funds.
“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 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 regulator is seeking injunctive relief, civil penalties and disgorgement of ill-gotten gain plus prejudgement interest.