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SEC Orders Fund Manager to Pay $12 Million to Settle Fraud Charges

The Securities and Exchange Commission has ordered real estate fund manager Eric Malley and his company MG Capital Management L.P. to pay more than $12 million to settle fraud charges.

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The Securities and Exchange Commission has ordered real estate fund manager Eric Malley and his company MG Capital Management L.P. to pay more than $12 million to settle fraud charges.

The SEC alleged that beginning in 2014, Malley, a licensed real estate broker with no investment management experience, and his firm solicited investments in two real estate funds, MG Capital Management Residential Funds III and MG Capital Management Residential Funds IV. The funds raised $58 million from 335 investors to purportedly invest in “luxury income-producing properties across Manhattan.”

Malley pled guilty in a parallel criminal case and was sentenced to 60 months in prison, ordered to pay $33.2 million in restitution to the victims of the fraud, and to forfeit an additional $5.6 million in ill-gotten gains.

The SEC’s complaint alleged that, in marketing the funds, Malley and MG Capital falsely claimed that they had 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 10-year period when, in fact, those prior funds never existed.

Malley and MG Capital allegedly made numerous other misrepresentations in their marketing materials and offering documents, including claiming that investors’ capital was “100 percent 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 SEC alleged that Malley and MG Capital misappropriated millions in investor assets while using falsified financial reports to conceal losses that ultimately forced the two funds into wind-down.

Finally, some of the misappropriated assets were paid to two related entities controlled by Malley, MG Capital Realty Management LLC and MG GP III LP, which were named as relief defendants in the case.

To settle the SEC charges, Malley was ordered to pay a total of $11.3 million in disgorgement and $816,400 in prejudgment interest, portions of which were to be paid jointly with MG Capital and/or the relief defendants. Those payments are deemed satisfied by his guilty plea in the related criminal matter.

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