SEC Charges Operators of Private Real Estate Fund in $66 Million Fraud
The Securities and Exchange Commission has settled charges against the operators of a real estate investment business who engaged in a years-long scheme to defraud hundreds of investors - including many retail investors - out of millions of dollars.
The Securities and Exchange Commission has settled charges against the operators of a real estate investment business who engaged in a years-long scheme to defraud hundreds of investors – including many retail investors – out of millions of dollars.
The SEC alleges that from 2012 through 2016, Tobias Preston, his brother, Charles Preston, and his son, Caleb Preston, along with their investment advisory entity, McKinley Mortgage Co. LLC, raised more than $66 million from approximately 300 investors, most of whom were retail investors.
The defendants are accused of falsely stating that investments in their fund, Alaska Financial Company III LLC were secure, and that the fund earned high returns from its portfolio. In reality, AFC III has been insolvent and unable to generate sufficient revenue to meet its interest obligations for years.
According to the SEC, although a portion of the raised funds were invested as promised to investors, Tobias Preston misused more than $17 million to fund personal businesses and to pay for personal expenses, and McKinley misused an additional $14 million to pay for its own operational expenses.
The SEC also alleges that Charles Preston, Caleb Preston, and accounting manager Laura Sanford helped hide the fraud by preparing or distributing investor materials with false information and concealing information from the fund’s auditors.
The SEC’s complaint charges violations of the anti-fraud and registration provisions of the federal securities laws. Without admitting or denying the SEC’s allegations, all defendants agreed to permanent injunctions against future violations.
The Prestons and McKinley agreed to repay the almost $30 million they improperly received that has not already been returned to the fund and to the appointment of new management at McKinley, AFC III, and their affiliates.
Tobias Preston also will be ordered to return assets he improperly acquired and to pay a $2.5 million penalty. Charles Preston and Caleb Preston agreed to pay penalties of $425,000 and $150,000, respectively. The settlements are subject to court approval.
