Real estate fraudsters to repay $30 million to investors
SEC settles with McKinley Mortgage, which promised secure investments and 6% returns.
The Securities and Exchange Commission reached a settlement with the operators of a California-based real estate fraud scheme that raised more than $66 million from approximately 300 investors, many of them retail investors.
According to the SEC, although some of the money raised by Redding, Calif.-based McKinley Mortgage Co. was invested as promised to investors, much of the money was misused and misallocated over a four-year period through 2016.
The defendants Tobias Preston, 55, his brother, Charles Preston, 34, and his son, Caleb Preston, 28, along with their investment advisory entity, McKinley Mortgage, have agreed to repay the nearly $30 million they improperly received that had not already been returned by the investment fund, Alaska Financial Co. III (AFCIII).
Tobias Preston also will be ordered to pay a $2.5 million penalty. Charles Preston and Caleb Preston agreed to pay penalties of $425,000 and $150,000, respectively.
According to the lawsuit filed with the U.S. District Court in the Eastern District of California, money was raised from investors by representing that promissory notes issued by AFCIII provided “secure, predictable annual returns of between 6% and 8.25% with preservation of principal because the investments were to be primarily secured by deeds of trust on real property.”
The lawsuit states, AFCIII had been losing money for years.
By 2012, AFCIII was insolvent and by 2014 it was unable to generate enough revenue to meet its ongoing interest obligations to investors.
The Prestons concealed this from investors, many of whom were “unaccredited and unsophisticated,” by providing investors with false documents stating that AFC III’s assets were earning between 12% and 14%. The truth was, many of AFC III’s assets were earning little or no returns, according to court documents.
According to the law suit, Laura Sanford, 55, AFC III’s accounting manager, helped calculate these misleading earnings figures that the Prestons included in materials for investors.
The Prestons also falsely told prospective investors that AFC III’s financial statements were audited when they knew the fund had not been audited since 2010.
McKinley Mortgage Co. was organized as a limitd liability corporation in Florida in 2005. AFCIII was organized as an LLC in Alaska in 2008.
The defendants did not respond to a request for comment for this story.
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