A company that purportedly invests in real estate notes has agreed to settle charges that it misled investors and used the capital raised for purposes other than promised.
McKinley Mortgage Co. LLC is an investment advisory firm in the business of raising capital from investors for the acquisition of deeds of trusts on real property.
The capital was placed into Alaska Financial Company III LLC, and promissory notes were issued by the fund with promises of returns between 6 percent and 8.25 percent.
From 2012 through 2016, approximately 300 investors poured more than $66 million into the fund.
But, according to a complaint filed last week by the Securities and Exchange Commission
in a Los Angeles federal court, Alaska Financial has been losing money for years and was unable to generate enough revenues to meet its ongoing interest obligations to investors.
The SEC claims that Redding, California-based McKinley Mortgage and its principals
— Tobias Preston; his brother, Charles Preston; and his son, Caleb Preston — diverted the capital for use other than originally promised.
For instance, $14 million was allegedly used to pay for the expenses of McKinley Mortgage, while
Tobias is accused of misusing $17 million
to fund personal businesses and pay for personal expenses.
Charles is accused of
improperly using approximately $175,000 for a down payment on his personal residence and to pay off personal debt.
Other investment funds were allegedly utilized for companies unrelated to Alaska Financial and for unlawful commissions.
In addition, the brother and son, along
with the firm’s accounting manager, Laura Sanford, are accused of helping to hide the fraud by preparing or distributing investor materials with false information. They also allegedly concealed information from auditors.
The defendants have agreed to settle to charges for $30 million, according to the SEC.
The settlement requires new management and restitution.
The settlement is subject to court approval.
