A fund manager has been charged with misappropriating over US$7 million from retail investors who he had duped into believing he was an experienced and successful investment manager.
The Securities and Exchange Commission in the US charged Eric Malley, and his company MG Capital Management, 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.
The combined funds raised a total of US$58 million primarily on the strength of a "fabricated investment track record", the SEC said.
The complaint alleged that in 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 US$1.18 billion that had significantly outperformed the S&P 500 Index over a 10-year period when the funds never existed.
The SEC also alleged, Malley and MG Capital made numerous other misrepresentations in marketing materials and offering documents, including claiming that investors' capital was "100% protected from loss" and secured by a non-existent US$250 million balance sheet.
Malley and MG Capital also led investors to believe they had partnerships with hundreds of prospective tenants with pre-signed, multi-year lease agreements, according to the complaint.
Finally, the SEC alleged that Malley and MG Capital misappropriated more than US$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," director of the SEC's New York Regional office Richard Best said.
"This case demonstrates our commitment to hold accountable perpetrators of offering frauds for the harm they inflict on retail investors."