The SEC has charged Eric Malley and his company, MG Capital Management L.P., with defrauding retail investors by using two funds: MG Capital Management Residential Funds III and MG Capital Management Residential Funds IV. Investors may have come across the funds through Malley’s other limited liability corporations, such as MGC Realty, MG GP III, or MG GP IV LP. Concerned investors should contact a securities attorney if they have questions about their investments in either of these funds.
Why is There an MG Capital Management Lawsuit?
Marketing material for MG Capital Fund III and MG Capital Fund IV represented that the funds would provide income for investors using the rent collected from corporate real estate properties. Malley claimed that he had secured partnerships with hundreds of corporate tenants with pre-signed, multi-year leases. The SEC alleges that this was not the case.
Eventually, both funds lost so much money that they had to wind down. In the investing world, the term “wind-down” refers to the process that allows funds to eventually suspend operations, liquidate their assets, and distribute remaining capital to investors.
SEC Alleges MG Capital Fund I and Fund II Both Nonexistent
According to the SEC complaint, when Eric Malley marketed MG Capital Management Residential Funds III and IV, he represented to investors that he had previously managed two real estate funds that had enjoyed great financial success. These previous funds allegedly had a combined portfolio value $1.18 billion and had outperformed the S&P 500 Index. But according to the SEC complaint, neither of those funds – Fund I nor Fund II – ever existed. (Investors who try to outperform the market are usually taking big risks – investors who simply want to save for retirement and rely on regular payouts should consider lower-risk securities.)
Securities Attorneys Warn Investors to Beware of Misleading Marketing
Eric Malley’s misrepresentation about MG Capital Management didn’t end with the allegedly imaginary funds. Marketing materials also stated that investors would be 100% protected from losses by a $250 million balance sheet. The SEC alleges that this protection, like Fund I and Fund II, never existed.
Marketing materials and offering documents for Fund IV represented that MG Capital funds would generate income “from hundreds of individual portfolio properties across 100+ premier buildings.” Fund III, the SEC alleges, only acquired nine properties, and two of those carried mortgages. In keeping with the alleged pattern of deceitful marketing, Fund IV’s marketing material did not mention Fund III’s substantial operating losses. Fund III had allegedly failed to make any rental income distributions for its investors and sustained net operating losses of $860,000.
Malley and MG Capital Management Funds raised approximately $58 million. Sadly, much of this money came from investors’ retirement funds, according to the SEC.
To keep news of his funds’ failure from investors, Eric Malley allegedly falsified financial reports to cover up his losses. After Malley allegedly misappropriated $7 million in investor assets, he distributed those funds to entities he controlled. He allegedly labeled these distributions as “management fees.”
Real Estate Broker Versus Securities Broker
Eric Malley is a real estate broker and is not registered with the SEC to sell securities. While they both have “broker” as part of their job title, real estate brokers are completely different from securities brokers.
That said, company owners who are not securities brokers can raise money through private placements with the SEC. Private placements are generally considered high risk and are only meant for high net-worth individuals, known as accredited investors.
There are several basic concepts that apply here:
- If a company offered a private placement to a non-accredited investor, the company must provide a thorough financial disclosure, which would include the type of documents a business would need when registering a security for public offering.
- If a company provides disclosures to their accredited investors, they must provide the same disclosures to the non-accredited investors as well.
- Companies must also not generally solicit or advertise their private placement securities, specifically because the SEC categorizes them as too high-risk for the average investor.
What Should Concerned Investors Do Now?
If you believe you lost money with investments in either MG Capital Management Residential Funds III or MG Capital Management Residential Funds IV, you should contact an experienced securities attorney. They can evaluate your case for free and advise on what steps to take next. Get in touch by emailing email@example.com or calling (877) 238-4175.