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Newsmakers

Real Estate PE Firm Founder Sentenced to 5 Years for Fraud

Eric Malley pleaded guilty to scamming over 300 investors out of approximately $58 million.
By Michael Katz



The founder and former CEO and CIO of real estate private equity investment firm MG Capital Management has been sentenced to five years in prison for his role in a $58 million securities fraud scheme.

Eric Malley pleaded guilty to scamming 335 people out of approximately $58 million by fraudulently inducing them to invest in two real estate investment funds: the Capital Management Residential Fund III and the MG Capital Management Residential Fund IV.

According a complaint filed in the Southern District of New York, Malley promised potential investors that the two funds would allow them to own an equity interest in hundreds of luxury income-producing properties in Manhattan. He said the properties would be leased mainly to corporate tenants, including well-known technology companies and a prominent New York City-based university, among others.

Malley also claimed that the funds followed a debt-free investment strategy that used sophisticated proprietary analytics he had created, and told investors that their capital was “100% protected from loss” and secured by a nonexistent $250 million balance sheet. 

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“Contrary to his claims that the funds were debt-free, Malley had in fact mortgaged multiple properties held by the funds, and the vast majority of properties held by the funds were leased to individuals, rather than corporate tenants,” said the complaint.

He also told investors that two previous funds he had created were extremely successful. According to a separate complaint filed by the US Securities and Exchange Commission (SEC), Malley claimed that one of those funds had a portfolio of 19 properties valued at $169.9 million, represented gross unrealized gains of just under 209% and had annualized gross unrealized gains on equity of 25.3%. He also claimed the fund outperformed the S&P 500’s six-year average nearly three-fold. However, according to the US Attorney’s Office for the Southern District of New York, neither of those funds had ever existed. And the two funds that did exist lost millions of dollars and are currently in the process of being liquidated.

Malley also allegedly misappropriated more than $7 million for himself by improperly retaining cash rebates received from the sellers of the apartments purchased by the MG Funds and by charging the MG Funds unearned transaction fees in connection with certain real estate acquisitions. He then tried to hide this by submitting false invoices and reporting inflated purchase prices to the funds’ administrator and investors.

“For years, Eric Malley swindled investors through false promises about himself, his credentials, his track record, and the state of his real estate investment funds,” US Attorney Damian Williams said in a statement.

In addition to the five-year prison term, Malley, 51, was sentenced to three years of supervised release and ordered to make restitution of more than $33.2 million and forfeit more than $5.6 million.

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Home > News > Newsmakers > 6.8% Inflation Is Highest in 39 Years—What Does It Mean for Investors?
Newsmakers

6.8% Inflation Is Highest in 39 Years—What Does It Mean for Investors?

One CIO says this is an ‘inflection point.’

By Anna Gordon


The Bureau of Labor Statistics (BLS) just released its monthly Consumer Price Index (CPI) update, which showed the highest annual inflation statistic in the more than three decades. Year over year, CPI was up 6.8% in November.

Nevertheless, the stock market shows no signs of slowing down. As of 11 a.m. on Friday, the S&P is up approximately 0.3% from its close on Thursday.  

Chris Zaccarelli, CIO for Independent Advisor Alliance (IAA), said he believes the markets will continue to perform well in the coming years, but that volatility will increase.

“The most important thing investors can do is to remain diversified,” he said in a written statement. “Interest rates, inflation, and liquidity are likely to be much more volatile over the next year.”

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Zaccarelli also anticipates that tapering and interest rate hikes may come sooner and more aggressively than initially anticipated. “The Fed is going to have to increase the pace of its tapering plans—potentially reducing buying twice as quickly, down by $30 billion/month instead of $15 billion/month,” he said.  

Inflation has been steadily rising since February, with the first above-target number coming in April at 4.2%. Inflation hovered at slightly above 5% from May through September before spiking up again in October and reaching 6.2%.

Jerome Powell, chair of the Federal Reserve, told Congress that the Fed will retire the word “transitory” when describing inflation, indicating that the price hikes might be here to stay for a little longer than originally expected. 

Some analysts, however, do see signs that the pace of inflation may slow down soon.

“Next month, we might see some of the pressures on inflation easing, especially as the recent declines in oil prices flow through into the numbers,” said Anu Gaggar, global investment strategist for Commonwealth Financial Network. Energy prices were the biggest contributors to inflation, experiencing a 33.3% price hike over the past year, according to the BLS.

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