The Securities and Exchanges Commission and the Justice Department are alleging that Robert Morgan, one of the largest landlords in the country, ran a “Ponzi scheme-like” scam.
The SEC filed civil charges against Morgan, who they say raised $110 million from more than 200 investors — promising returns of 11 percent — only to use that cash as a “fraudulent slush fund” to pay previous investors, the Wall Street Journal reported. Investors are still owed $63 million. Morgan, who has previously denied any wrongdoing, is also facing criminal charges from the Justice Department of conspiracy to commit bank fraud, wire fraud and money laundering.
Lenders are chomping at the bit to foreclose on the properties involved under the fraud provision most mortgages have, as in Syracuse, New York, where Bob Morgan recently lost a 208-unit apartment complex to mezzanine lender SteepRock Capital LLC.
Morgan Management says it has 140 properties and 34,000 units in 14 states. It was ranked by Yardi Matrix as the 15th largest portfolio in the U.S. earlier this year.
The SEC case could reverberate through the rest of the industry, as it raises questions about how Fannie Mae and Freddie Mac guard against multifamily apartment buildings over reporting income, a problem that afflicted single-family housing in the lead up to the 2008 crisis.
Morgan has been under investigation since last year. The Justice Department filed a criminal indictment alleging that Morgan, his son, a mortgage broker and former Morgan Management executive of the firm doctored financial records to get bigger loans from lenders to the tune of $500 million. The Justice Department seeks to forfeit $267.3 million from the four defendants, who have pleaded not guilty to the charges. [WSJ] — Georgia KromreiRecommend0 recommendationsPublished in