Dan Noyes , Chief Investigative Reporter
The Department of Justice has filed felony charges against an East Bay man and his son, in what could turn out to be the largest securities fraud case in California history. At stake is more than $700 million from about 2,800 investors, many of them in the Bay Area.
The ABC7 News I-Team's Dan Noyes first broke the story more than two years ago; he also reported then that the FBI and Securities and Exchange Commission were investigating Walter and Kelly Ng, and finally, the criminal case is moving forward. So many people have lost their life savings.
Walter Ng had no answer in September 2011 when Dan asked him, "Mr. Ng, what do you say to investors who've lost all that money?"
The Department of Justice has filed felony charges against an East Bay man and his son, in what could turn out to be the largest securities fraud case in California history. At stake is more than $700 million from about 2,800 investors, many of them in the Bay Area.
The ABC7 News I-Team's Dan Noyes first broke the story more than two years ago; he also reported then that the FBI and Securities and Exchange Commission were investigating Walter and Kelly Ng, and finally, the criminal case is moving forward. So many people have lost their life savings.
Walter Ng had no answer in September 2011 when Dan asked him, "Mr. Ng, what do you say to investors who've lost all that money?"
Over the past 35 years, Walter Ng and his son, Kelly, ran a series of limited partnerships -- among them, RE Loans, Bar-K, Inc., and B-4 partners -- that made loans to real estate developers.
The charging document, "the United States of America versus Walter Ng and Kelly Ng," says they, in effect, looted the funds by making repeated cash withdrawals. The Ng's are charged with "structuring transactions for the purpose of evading a reporting requirement;" 11 counts for Walter, 20 for Kelly. Each count carries a possible 10 years in prison and a $500,000 fine.
Investor Dr. Bernard Wittenberg tells the I-Team, "It's been a hell of a long delay."
The 81-year-old is typical of the Ng investors -- he met them through friends and eventually lost more than $400,000. He's had to delay his retirement. He's relieved the Ngs have finally been charged.
"I felt happy at last," Wittenberg said. "I'll be happier when they're sitting in jail and happier yet if they're able to extract anything, but I think we may have lost every penny."
The Ngs also face a civil case from the SEC, accusing them of lying to investors about the health of their funds and "secretly using the assets of a new real estate fund to rescue an older, rapidly collapsing fund."
And attorney Richard Brown is leading a class action lawsuit; he thinks the Ngs and others involved in the funds may face additional charges.
"I think there will be more criminal charges to come," Brown said. "I think during this period when the Ngs were skimming the money, the people who were supposed to be watching over them, their lawyers, accountants and bankers were not doing their jobs."
The Ngs are set for arraignment in one month; Dan Noyes will be there to cover it. Walter Ng's attorney declined to comment Thursday, and Kelly Ng's lawyer did not call back. Now that they are charged, an IRS rule from the Bernie Madoff case comes into play -- investors may be able to deduct up to 95 percent of their losses.
(Copyright ©2014 KGO-TV. All Rights Reserved.)
The charging document, "the United States of America versus Walter Ng and Kelly Ng," says they, in effect, looted the funds by making repeated cash withdrawals. The Ng's are charged with "structuring transactions for the purpose of evading a reporting requirement;" 11 counts for Walter, 20 for Kelly. Each count carries a possible 10 years in prison and a $500,000 fine.
Investor Dr. Bernard Wittenberg tells the I-Team, "It's been a hell of a long delay."
The 81-year-old is typical of the Ng investors -- he met them through friends and eventually lost more than $400,000. He's had to delay his retirement. He's relieved the Ngs have finally been charged.
"I felt happy at last," Wittenberg said. "I'll be happier when they're sitting in jail and happier yet if they're able to extract anything, but I think we may have lost every penny."
The Ngs also face a civil case from the SEC, accusing them of lying to investors about the health of their funds and "secretly using the assets of a new real estate fund to rescue an older, rapidly collapsing fund."
And attorney Richard Brown is leading a class action lawsuit; he thinks the Ngs and others involved in the funds may face additional charges.
"I think there will be more criminal charges to come," Brown said. "I think during this period when the Ngs were skimming the money, the people who were supposed to be watching over them, their lawyers, accountants and bankers were not doing their jobs."
The Ngs are set for arraignment in one month; Dan Noyes will be there to cover it. Walter Ng's attorney declined to comment Thursday, and Kelly Ng's lawyer did not call back. Now that they are charged, an IRS rule from the Bernie Madoff case comes into play -- investors may be able to deduct up to 95 percent of their losses.
(Copyright ©2014 KGO-TV. All Rights Reserved.)
SEC CHARGES BAY AREA REAL ESTATE FUND MANAGERS WITH $85 MILLION FRAUD
(Read SEC Complaint Here)
SEC_Complaint_SEC_v_Ng_et_al._FileStamped
(See Article on Bloomberg News)
SEC Sues California Man Alleging Real Estate Fund Fraud – Bloomberg
(See ABC News CH 7)
abclocal.go
(See Story in Walnut Creek Patch)
http://walnutcreek.patch.com/articles/sec-suit-targets-former-lamorinda-investment-firm
SEC News Release:
San Francisco, Calif., Feb. 28, 2013 – The Securities and Exchange Commission today charged three Bay Area real estate fund managers with fraud for secretly using the assets of a new real estate fund to rescue an older, rapidly collapsing fund.
The SEC alleges that Walter Ng, his son Kelly Ng, and Bruce Horwitz lured investors into their real estate fund called Mortgage Fund ’08 LLC (MF08) by claiming it was safe and secure and would replicate the success of their earlier real estate fund, R.E. Loans LLC. In reality, R.E. Loans could no longer make payouts to its investors, so the Ngs funneled millions of dollars from MF08 to prop up R.E. Loans. The Ngs and Horwitz falsely touted both funds’ performance in their effort to continue raising money. They raised more than $85 million during an 18-month period from investors primarily living in the San Francisco area.
“As fund managers, the Ngs had a fiduciary obligation to put MF08′s interests ahead of their own,” said Marshall S. Sprung, Deputy Chief of the SEC Enforcement Division’s Asset Management Unit. ”Instead, the Ngs cannibalized one fund in a futile effort to keep another fund afloat while giving investors the illusion that both funds were profitable.”
According to the SEC’s complaint filed in federal court in Oakland, the Ngs and Horwitz promoted the MF08 fund in the midst of the 2008 financial crisis as a new opportunity to invest in conservatively underwritten commercial real estate loans secured by deeds of trust. But the Ngs and their advisory firm, The Mortgage Fund LLC, immediately began transferring money raised by MF08 to R.E. Loans so that they could afford distributions to investors in that fund. From December 2007 to March 2008, the Ngs transferred almost $39 million from MF08 to R.E. Loans. They later attempted to justify the transfers by claiming MF08 had purchased three loans from R.E. Loans that totaled around $39 million.
The SEC further alleges that both the Ngs and Horwitz lured investors into MF08 by making false claims about its performance and the R.E. Loans fund’s performance. What investors did not know was that both R.E. Loans and MF08 began to experience significant and dramatic borrower defaults in 2008. For example, the percentage of the R.E. Loans portfolio that was either delinquent or in default increased from 19 percent in January 2008 to 48 percent in August 2008. The percentage of the MF08 portfolio that was delinquent increased from 16 percent in March 2008 to 74 percent in mid-June 2008.
“Sadly, this is another case where the collapse of the real estate market was compounded by unscrupulous fund managers,” said Marc Fagel, Director of the SEC’s San Francisco Regional Office. ”Rather than come clean with investors, these individuals continued to raise millions of dollars and conceal the failing performance of their real estate holdings.”
The SEC alleges that despite the funds’ rapidly disintegrating portfolios, the Ngs and Horwitz repeatedly assured investors that R.E. Loans and MF08 were performing well and the underlying loans were safe and secure. For example, both Walter Ng and Horwitz touted the funds’ purportedly positive performance at a June 2008 investor dinner in Oakland’s Chinatown. Additionally, Walter Ng and Kelly Ng in July 2008 characterized MF08 as a “fantastic success” even though more than 70 percent of its loan portfolio was delinquent by that time.
The SEC’s complaint charges Walter Ng, Kelly Ng, Bruce Horwitz, and The Mortgage Fund with violating the antifraud provisions of the federal securities laws, and seeks injunctive relief, disgorgement of wrongful profits, and financial penalties.
This case was investigated by Michael Liftik and Erin Schneider of the San Francisco Regional Office, both of whom are members of the SEC Enforcement Division’s Asset Management Unit. The SEC’s litigation is being led by Robert Mitchell of the San Francisco Regional Office.
# # #
For more information about this enforcement action, contact:
Marshall Sprung
Deputy Chief, Asset Management Unit, SEC Division of Enforcement
(323) 965-3320
Michael S. Dicke
Associate Director (Enforcement), SEC San Francisco Regional Office
(415) 705-2458
Erin E. Schneider
Assistant Director (Enforcement), SEC San Francisco Regional Office
(415) 705-8112
(Read SEC Complaint Here)
SEC_Complaint_SEC_v_Ng_et_al._FileStamped
(See Article on Bloomberg News)
SEC Sues California Man Alleging Real Estate Fund Fraud – Bloomberg
(See ABC News CH 7)
abclocal.go
(See Story in Walnut Creek Patch)
http://walnutcreek.patch.com/articles/sec-suit-targets-former-lamorinda-investment-firm
SEC News Release:
San Francisco, Calif., Feb. 28, 2013 – The Securities and Exchange Commission today charged three Bay Area real estate fund managers with fraud for secretly using the assets of a new real estate fund to rescue an older, rapidly collapsing fund.
The SEC alleges that Walter Ng, his son Kelly Ng, and Bruce Horwitz lured investors into their real estate fund called Mortgage Fund ’08 LLC (MF08) by claiming it was safe and secure and would replicate the success of their earlier real estate fund, R.E. Loans LLC. In reality, R.E. Loans could no longer make payouts to its investors, so the Ngs funneled millions of dollars from MF08 to prop up R.E. Loans. The Ngs and Horwitz falsely touted both funds’ performance in their effort to continue raising money. They raised more than $85 million during an 18-month period from investors primarily living in the San Francisco area.
“As fund managers, the Ngs had a fiduciary obligation to put MF08′s interests ahead of their own,” said Marshall S. Sprung, Deputy Chief of the SEC Enforcement Division’s Asset Management Unit. ”Instead, the Ngs cannibalized one fund in a futile effort to keep another fund afloat while giving investors the illusion that both funds were profitable.”
According to the SEC’s complaint filed in federal court in Oakland, the Ngs and Horwitz promoted the MF08 fund in the midst of the 2008 financial crisis as a new opportunity to invest in conservatively underwritten commercial real estate loans secured by deeds of trust. But the Ngs and their advisory firm, The Mortgage Fund LLC, immediately began transferring money raised by MF08 to R.E. Loans so that they could afford distributions to investors in that fund. From December 2007 to March 2008, the Ngs transferred almost $39 million from MF08 to R.E. Loans. They later attempted to justify the transfers by claiming MF08 had purchased three loans from R.E. Loans that totaled around $39 million.
The SEC further alleges that both the Ngs and Horwitz lured investors into MF08 by making false claims about its performance and the R.E. Loans fund’s performance. What investors did not know was that both R.E. Loans and MF08 began to experience significant and dramatic borrower defaults in 2008. For example, the percentage of the R.E. Loans portfolio that was either delinquent or in default increased from 19 percent in January 2008 to 48 percent in August 2008. The percentage of the MF08 portfolio that was delinquent increased from 16 percent in March 2008 to 74 percent in mid-June 2008.
“Sadly, this is another case where the collapse of the real estate market was compounded by unscrupulous fund managers,” said Marc Fagel, Director of the SEC’s San Francisco Regional Office. ”Rather than come clean with investors, these individuals continued to raise millions of dollars and conceal the failing performance of their real estate holdings.”
The SEC alleges that despite the funds’ rapidly disintegrating portfolios, the Ngs and Horwitz repeatedly assured investors that R.E. Loans and MF08 were performing well and the underlying loans were safe and secure. For example, both Walter Ng and Horwitz touted the funds’ purportedly positive performance at a June 2008 investor dinner in Oakland’s Chinatown. Additionally, Walter Ng and Kelly Ng in July 2008 characterized MF08 as a “fantastic success” even though more than 70 percent of its loan portfolio was delinquent by that time.
The SEC’s complaint charges Walter Ng, Kelly Ng, Bruce Horwitz, and The Mortgage Fund with violating the antifraud provisions of the federal securities laws, and seeks injunctive relief, disgorgement of wrongful profits, and financial penalties.
This case was investigated by Michael Liftik and Erin Schneider of the San Francisco Regional Office, both of whom are members of the SEC Enforcement Division’s Asset Management Unit. The SEC’s litigation is being led by Robert Mitchell of the San Francisco Regional Office.
# # #
For more information about this enforcement action, contact:
Marshall Sprung
Deputy Chief, Asset Management Unit, SEC Division of Enforcement
(323) 965-3320
Michael S. Dicke
Associate Director (Enforcement), SEC San Francisco Regional Office
(415) 705-2458
Erin E. Schneider
Assistant Director (Enforcement), SEC San Francisco Regional Office
(415) 705-8112
