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Ex-CEO From Fairfield County Sentenced For $58 Million Fraud

An ex-founder and CEO from the region has been sentenced for a securities scheme in which federal authorities say he fraudulently induced hundreds of individuals to invest a total of approximately $58 million.
An ex-founder and CEO from the region has been sentenced for a securities scheme in which federal authorities say he fraudulently induced hundreds of individuals to invest a total of approximately $58 million. Photo Credit: Pixabay/NikolayFrolochkin

The founder and former chief executive officer of a private equity investment firm in the region will be sent to prison in connection with a securities scheme in which federal authorities say he fraudulently induced hundreds of individuals to invest a total of approximately $58 million in two real estate funds.

Fairfield County resident Eric Malley, age 51, of New Canaan was sentenced to five years in prison on Thursday, Dec. 2.

In addition to the prison term, Malley was sentenced to three years of supervised release and ordered to make restitution in the amount of $33,249,822.12 and forfeiture in the amount of $5,625,747.45.

“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 for the Southern District of New York Damian Williams said. "Today’s sentence sends an important message that there are grave consequences to such deception.”

Malley had pleaded guilty on May 20, 2021.

According to the allegations contained in the complaint, the Information to which Malley pleaded guilty, other court documents, and statements made in public court proceedings:

  • Malley founded MG Capital Management LP in approximately January 2013, and served as its chief executive officer and chief investment officer from that time until approximately December 2019. During that time, he formed two real estate investment funds: MG Capital Management Residential Fund III in approximately February 2014, and MG Capital Management Residential Fund IV in approximately September 2017.
  • Malley promised, when soliciting investors and throughout the life of the funds, that the funds represented an opportunity to own an equity interest in hundreds of luxury income-producing properties across Manhattan, following a debt-free investment strategy purportedly informed by sophisticated proprietary analytics that Malley had developed over the course of his career in real estate.
  • Malley touted two purportedly extremely successful prior funds he had formed, Fund I and Fund II; assured investors that the funds would be and were debt-free; and represented that the properties held by the funds would be and were leased primarily to corporate tenants, including, among others, well-known technology companies and a prominent university based in New York City with which Malley had pre-existing agreements.
  • But Malley’s representations were false. Funds I and II did not exist. The funds were not debt-free, but instead held mortgaged properties. The properties that made up the Funds were almost entirely leased to individual, not corporate, tenants. Malley did not have the corporate relationships or pre-existing agreements he touted. The funds held far fewer properties than Malley had represented. And although Malley promised the investments were fully protected from loss, they were not.
  • Malley induced approximately 335 investors to invest a total of approximately $58 million in the funds through these and other fraudulent misrepresentations. The funds together incurred millions of dollars in losses and are currently being liquidated.

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