The 2008 financial crisis caused many real estate investment funds to run into trouble. Some fund managers stepped over the line hoping to wait out the turmoil and recover. The Securities and Exchange Commission finalized charges against a fund manager who hoped to divert funds to stay liquid during the turmoil.
According to the SEC’s complaint, the Walter Ng, his son Kelly Ng, and Bruce Horwitz promoted Mortgage Fund 08 during the 2008 financial crisis as a new opportunity to invest in conservatively underwritten commercial real estate loans. But the Ngs and their advisory firm, The Mortgage Fund LLC, immediately began transferring money raised by MF08 to an older fund that had run into trouble. Their R.E. Loans fund was in trouble exactly because of the 2008 financial crisis.
R.E. Loans was a high-risk debt fund, charging high interest to real estate projects and developers who could not obtain traditional financing. From 2002 through 2006 the fund appeared to be successful. The Ngs raised hundreds of millions of dollars from investors and distributed hundreds of millions back to investors. But the fund ran into cash flow difficulties in 2007. It was the harbinger of the upcoming financial crisis.
From December 2007 to March 2008, the Ngs transferred almost $39 million from MF08 to R.E. Loans. I’m an optimist so I assume that the Ng were hoping some short-term affiliate loans would be enough to get R.E. Loans through the financial crisis. But delinquencies continued to rise from 15% in March 2008 to 74% by June 2008.
The Ngs lied to their investors and doubled down on the earlier fund.
The NGs were also subject to criminal investigation and charges. Kelly is serving 18 months while his elderly father is merely on probation. The charges were light because it took too long to discover and investigate the fraud. The statute of limitations limited government action.
As we have passed the five year mark for the 2008 financial crisis the frauds that happened during the time will not be prosecuted.
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