Former CEO Of Real Estate Private Equity Investment Firm Pleads Guilty To $58 Million Securities Fraud | USAO-SDNY
Audrey Strauss, United States attorney for the southern borough of New York, announced that ERIC MALLEY, founder and former chief executive of real estate private equity investment firm MG Capital Management LP, has today pleaded guilty to a securities fraud program Hundreds of individuals were fraudulently induced to invest a total of approximately $ 58 million in two real estate mutual funds by lying about his own investment experience and track record, and the nature and characteristics of those funds, among other things. MALLEY pleaded guilty to U.S. District Judge Edgardo Ramos.
US attorney Audrey Strauss said, “As Eric Malley has now admitted, he lied to his victims to get them to invest approximately $ 58 million in his mutual funds. He promised the victims that they would take advantage of the ownership of stocks in Manhattan and falsely advertise his previous experience. These lies went on for years as Malley got rich. As today’s plea demonstrates, our office remains committed to protecting investors from the misleading and fraudulent behavior of investment professionals.
According to the allegations contained in the complaint and information, and based on statements made in Manhattan federal court:
MALLEY founded MG Capital Management LP (“MG Capital”) in January 2013 and was its Chief Executive Officer and Chief Investment Officer from that point until approximately December 2019. During this time, MALLEY established two real estate investment funds (collectively, “The Funds”) – MG Capital Management Residential Fund III (“Fund III”), around February 2014, and MG Capital Management Residential Fund IV (“Fund IV”), around February 2014 September 2017.
MALLEY, in attracting investors and throughout the life of the Funds, promised that the Funds would offer investors the opportunity to acquire interests in hundreds of profitable luxury properties across Manhattan using a debt-free investment strategy developed by highly developed Owners are taught analytics that MALLEY had developed over his career in real estate. MALLEY pointed to two allegedly hugely successful previous funds he founded: Fund I and Fund II; assured investors that the funds would and were debt free; and believed that the properties held by the Funds will be and will be rented primarily to corporate tenants, including, but not limited to, well-known technology companies and a prominent New York City-based university. But MALLEY’s accounts were wrong. His claims about the existence and performance of Funds I and II were largely fabricated; The funds were not free of debt, but held real estate encumbered with mortgages. The properties that made up the funds were rented almost entirely to individual tenants rather than corporate tenants. and the funds held far less real estate than MALLEY had represented.
Through these and other fraudulent misrepresentations and omissions throughout the life of the funds, MALLEY prompted approximately 335 investors to invest a total of approximately $ 58 million in the funds. The funds have suffered combined losses of millions, but MALLEY, in its capacity as general partner in connection with Fund III, has distributed at least $ 278,000 to itself and has disclosed the losses of Fund IV only approximately two years after Fund IV has started operations.
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MALLEY, 50, of New Canaan, Connecticut, pleaded guilty to a securities fraud that carries a maximum sentence of 20 years in prison. The maximum possible sentence is prescribed by Congress and is given here for informational purposes only, as any conviction of the accused is determined by the judge. The conviction is scheduled for September 16, 2021 at 11:00 a.m.
Ms. Strauss commended the investigative work of the Federal Bureau of Investigation and thanked the New York regional office of the US Securities and Exchange Commission.
This case is being handled by the Office’s Securities and Commodities Task Force. United States Assistant Attorney Elizabeth A. Hanft is responsible for law enforcement.