Most frauds have some element of fake returns. I picked the case against McKinley Mortgage Co., Charles Preston, and his son, Caleb Preston because the headline in the release included: Private Real Estate Fund with Scheme to Defraud Retail Investors.” Frauds involving private real estate funds catch my attention.
McKinley bought promissory notes secured by deeds of trust or originated new loans, packaged them into investment pools and sold interests in the pools to investors.
According to the complaint, the problems started in 2012 when the sponsors started taking more in management fees and expenses than allowed under the fund documents. According to the complaint, it was an extra $700,000 in 2012 and $1.5 million in 2013. The it grew even bigger in subsequent years.
They also expanded the scope of investments. The fund documents said that up to 25% could be invested in Mexico. They exceeded that amount.
Then they increased the amount of returns from the funds to prospective investors.
Three bad things to do.
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