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Operators of Scheme to Defraud Retail Investors Out of Millions Charged

Operators of Scheme to Defraud Retail Investors Out of Millions Charged

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SEC Charges Operators of Private Real Estate Fund Involved in Long-Term Scheme Which Raised More than $66 Million From Approximately 300 Investors

On March 22, 2018, the Securities and Exchange Commission announced that it settled charges against the operators of a real estate investment business who engaged in a multiyear scheme to bilk hundreds of investors, which included many retail investors, out of millions of dollars. The charged defendants will, as a result of the settlement, be ordered to return all ill-gotten funds to investors.

The SEC alleges in its complaint that from 2012 through 2016, Tobias Preston, his brother, Charles Preston, and his son, Caleb Preston, along with their investment advisory entity, McKinley Mortgage Co. LLC (“McKinley Mortgage”), raised more than $66 million from approximately 300 investors, most of whom were retail investors, by falsely stating that investments in their fund, Alaska Financial Company III, LLC (“Alaska Financial III”), were secure and that Alaska Financial III earned high returns from its portfolio. Alaska Financial III, however, has been insolvent and unable to generate sufficient revenue to meet its interest obligations for years.

According to the SEC, although a portion of the raised funds were invested as promised to investors, Tobias Preston misused more than $17 million to fund personal businesses and to pay for personal expenses, and McKinley Mortgage misused an additional $14 million to pay for its own operational expenses. The SEC also alleges that Charles Preston, Caleb Preston, and Accounting Manager Laura Sanford helped hide the fraud by preparing or distributing investor materials with false information and concealing information from Alaska Financial III’s auditors.

The SEC’s complaint charges violations of the anti-fraud and registration provisions of the federal securities laws. Without admitting or denying the SEC’s allegations, all defendants agreed to permanent injunctions against future violations. McKinley Mortgage Co. LLC, Tobias Preston, Charles Preston, and Caleb Preston consented to entry of a final judgment permanently enjoining them from future violations of Sections 5 and 17(a) of the Securities Act of 1933 (Securities Act), Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder, and Sections 206(1) and 206(2) of the Investment Advisers Act of 1940. Caleb Preston also consented to a permanent injunction against future violations of Section 15(a) of the Exchange Act; affiliated entity McKinley Mortgage Company, LLC consented to a permanent injunction against future violations of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder; and Laura Sanford consented to a permanent injunction against future violations of Section 17(a) of the Securities Act.

The Prestons and McKinley agreed, pursuant to settlements subject to court approval, to repay the almost $30 million they improperly received that has not already been returned to Alaska Financial III and to the appointment of new management at McKinley, Alaska Financial III, and their affiliates. Tobias Preston also will be ordered to return assets he improperly acquired and to pay a $2.5 million penalty. Charles Preston and Caleb Preston agreed to pay penalties of $425,000 and $150,000, respectively.

Source: SEC.gov

Kehoe Law Firm, P.C.