Federal prosecutors say the former CEO of a New York real estate firm tricked hundreds of investors from more than $ 50 million after luring them into a strategy involving “debt-free” real estate in Manhattan.
The Department of Justice accused Eric Malley, founder and former CEO of MG Capital Management, of securities fraud and wire fraud, claiming that he had scared investors of millions of dollars through two real estate investment funds.
Malley was arrested Tuesday in New Canaan, Connecticut, and prosecutors filed the case U.S. District Court in southern New York this week.
Prosecutors say Malley lied to investors about his past experience, having already set up two successful funds.
He then established two new funds: Fund III and Fund IV. He told investors for Fund III that the company would buy debt-free luxury apartments in Manhattan and then rent them out to corporate tenants.
However, the fund did not hold debt properties; instead, according to the complaint, it had mortgaged real estate with individual tenants, unlike corporate tenants. About 60 inventors invested about $ 23 million, but never saw a return on their investment – in fact, the fund recorded a net loss of $ 860,000. Despite this, federal officials claimed that Malley personally accepted approximately $ 278,000 as a general partner.
In Fund IV, about 275 parties invested about $ 35 million in the purchase of more debt-free properties. The fund then suffered losses of millions of dollars, which Malley did not disclose for two years. Investors were told that if they did not see the return, the fund would draw more than $ 250 million from the general partner’s balance sheet, according to the Department of Justice. However, according to the complaint, the general partner never had more than $ 25,000 in the balance sheet.
As a result of the alleged system, many investors lost all retirement savings, according to the complaint.
“Malley has reportedly promised his clients that they will reap the benefits of equity in Manhattan real estate through their time-tested, sophisticated debt-free investment strategy,” said Audrey Strauss, an incumbent Manhattan American lawyer. “They said it was the promises of a lie.”
Malley resigned as CEO of MG Capital in December 2019. Prosecutors say in early 2020 Malley learned of an investigation by the US Securities and Exchange Commission. He then deleted about 10,000 files from the MG server, according to the complaint, including information on brokers and closing documents with detailed information on the costs associated with the acquisition of real estate.
In addition to DOJ charges, Malley and his former company MG Capital Management face SEC allegations of civil fraud.
Marisa Kristin Cabrera, Malley’s public lawyer, did not return the request for comment immediately.