The US Securities and Exchange Commission has charged fund manager Eric Malley, 50, and his company MG Capital Management with defrauding retail investors in two real-estate funds. His targets were HNW investors and family offices.
Eric Malley resides in New York, is the sole owner of MG Capital and served as its CEO until he stepped down in December. He owns or controls the general partner of the MG Funds - MG GP III, a Delaware limited partnership formed in January 2013.
This case concerns an offering fraud orchestrated by Malley, the founder and principal of MG Capital, the investment manager of two real estate funds. According to the SEC, Malley fraudulently solicited investments in the two funds, MG Capital Management Residential Funds III and IV LP, through deceptions ranging from fabricating a highly profitable investment track record to promising investors that their capital was “100% protected from loss” and secured by a non-existent $250 million balance sheet, and to falsely claiming that MG Capital had partnerships with hundreds of corporate tenants with pre-signed, multi-year lease agreements.
In February 2014, Malley launched Fund III with a set of marketing materials that his company distributed to targeted investors, primarily high net worth individuals, family offices and certain institutional investors. Fund IV followed.
The SEC says that after luring investors into the funds with these false promises, Malley siphoned the assets of the MG Funds by making improper payments and distributions to related entities he controlled, while hiding huge losses from investors with falsified financial reports. All told, the defendants in the case (Malley, MG and the funds) are accused of having raised approximately $58 million from investors for the MG Funds, much of it from investors’ retirement savings and walked away with more than $7 million in misappropriated investors' funds.
The commission is asking the federal US District Court for the Southern District of New York for a final judgment: (a) permanently enjoining the defendants from breaking the securities laws; (b) ordering them to disgorge all ill-gotten gains and to pay prejudgment interest; and (c) ordering them to pay civil money penalties [no figure suggested].