Was one of the nation’s largest landlords running a Ponzi-type scheme that involved shuffling money from investors to other investors and falsifying loan documents? Federal authorities certainly think so.
The Securities and Exchange Commission announced last week that it obtained a federal court order mandating Robert Morgan to repay more than $63 million to individuals who invested in Morgan’s real estate companies.
According to the SEC, Morgan, a New York residential and commercial real estate developer, and two of his entities, Morgan Mezzanine Fund Manager and Morgan Acquisitions, engaged in a fraudulent real estate investment scheme.
The SEC claims that one of the ways Morgan financed his real estate development projects was through the sales of securities to more than 200 retail investors, many of whom invested through their retirement accounts.
Morgan allegedly told the investors that their money would be used to improve multifamily properties. But, Morgan and his companies allegedly diverted investor funds to facilitate payments to earlier investors and made misrepresentations to later investors about prior fund performance – hallmarks of a Ponzi scheme.
As the SEC and Department of Justice work through Morgan’s prosecution, the SEC obtained a court order that requires Morgan to repay those investors $63 million, which is the full amount that those investors invested in Morgan’s companies.
Last year, Morgan was hit with criminal charges by the DOJ for conspiracy to commit bank fraud, wire fraud and insurance fraud, and then slapped with civil fraud charges from the SEC for siphoning and misusing investor funds.
The charges are the culmination of a cross-agency investigation that came to light in August that looked into fraud allegations involving loans backing $1.5 billion in mortgage securities issued by Fannie Mae and Freddie Mac.
That led to the indictment of four individuals for allegedly conspiring to falsify loan information in order to obtain more than $167 million in multifamily loans, and two of those individuals are related to Morgan – the owner of the properties entangled in the mortgage fraud.
According to the DOJ, Morgan conspired with three others over the span of 10 years to “fraudulently obtain moneys, funds, credits, assets, securities, and other property” from Fannie Mae, Freddie Mac, and other financial institutions, including Arbor Commercial Mortgage and Berkadia Commercial Mortgage.
The DOJ alleges that Morgan and his crew kept two sets of books, one with accurate accounting information, and another that was comprehensively cooked for lenders that needed information for servicing and refinancing the loans.
The SEC alleged that Morgan raised more than $110 million by promising an 11% return to investors and then diverted much of that cash to pay other investors in a Ponzi-like scheme.
According to the SEC, Morgan’s investors were still owed $63 million when the alleged scheme came crashing down. And now, they’re getting that money back.
The SEC said it initially sought and obtained emergency relief, including the appointment of a receiver responsible for maximizing the monetary recovery for investors.
Since then, organ voluntarily liquidated certain assets to generate funds for collection by the receiver. And last week, the court approved the receiver’s plan to distribute over $63 million to harmed investors.
“Getting money back to defrauded investors is one of our top priorities at the SEC,” said Daniel Michael, chief of the SEC’s Complex Financial Instruments Unit. “Although this case is ongoing, the return of funds to investors is an extremely important development and the product of considerable effort by the parties and the receiver.”