SEC Obtains Final Judgment Against Real Estate Fund Manager and Its Founder Who Fabricated Track Record and Misappropriated Millions from Investors
Litigation Release No. 25343 / March 15, 2022
Securities and Exchange Commission v. Eric C. Malley, et al., No. 1:21-cv-00237 (S.D.N.Y. filed January 12, 2021)
The Securities and Exchange Commission announced today the entry of final consent judgments on March 14, 2022 against fund manager Eric C. Malley and his company, MG Capital Management L.P., who, along with two related entities Malley controlled, have agreed to pay over $12 million to resolve charges related to defrauding investors in two real estate funds managed by MG Capital.
The SEC's complaint, filed on January 12, 2021 in the Southern District of New York, alleged that 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, raising a total of $58 million primarily on the strength of a fabricated investment track record. The complaint alleged that, in marketing Funds III and IV, Malley and MG Capital falsely claimed that they had previously managed two highly-successful real estate funds with a combined portfolio value of $1.18 billion that had significantly outperformed the S&P 500 Index over a ten-year period when, in fact, those prior funds never existed. As alleged, Malley and MG Capital made numerous other misrepresentations in their marketing materials and offering documents, including claiming that investors' capital was "100% protected from loss" and secured by a non-existent $250 million balance sheet and that they had partnerships with hundreds of prospective tenants with pre-signed, multi-year lease agreements. Further, the complaint alleged that Malley and MG Capital misappropriated millions in investor assets while using falsified financial reports to conceal huge losses that ultimately forced the two funds into wind-down. Finally, as alleged in the complaint, some of the misappropriated assets were paid to two related entities controlled by Malley, MG Capital Realty Management LLC and MG GP III LP, both of which were named as Relief Defendants.
Malley and MG Capital consented to the entry of final judgments permanently enjoining them from violating Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and ordering Malley to pay a total of $11,348,226 in disgorgement and $816,423.41 in prejudgment interest, portions of which were to be paid on a joint and several basis with MG Capital and/or the Relief Defendants. Those payments are deemed satisfied by Malley's guilty plea in a related criminal matter, pursuant to which Malley was sentenced to 60 months imprisonment and ordered to pay $33,249,822.12 of restitution to the victims of the fraud and to forfeit an additional $5,625,747.45 in ill-gotten gains.
The SEC's investigation was conducted by Celeste A. Chase, Derek M. Schoenmann, Ibrahim Sajalieu Bah, Todd D. Brody, and Neil B. Hendelman of the SEC's New York office. The SEC's litigation was conducted by Mr. Brody, Mr. Schoenmann, and Mr. Bah, and the case was supervised by Lara Shalov Mehraban.