Landlord Ordered to Repay $63 million to Investors Due to Suspicion of Massive Fraud
In May 2019, United States Attorney James P. Kennedy, Jr. announced an indictment against Robert Morgan for conspiracy to commit wire, bank, and insurance fraud. Further investigation revealed that Morgan had been running a Ponzi-type scheme scamming real estate investors and lenders out of hundreds of millions of dollars. This week, the federal court issued Morgan with an order to repay more than $63 million to individual investors.
How the Real Estate Investment Scam Worked
According to the Securities and Exchange Commission, Morgan, a commercial real estate developer, used two of his entities to run a fraudulent real estate investment scheme. Over the course of 13 years, Morgan built a real estate empire that included more than 36,000 apartments and operated in 14 states.
In what is likely the largest such scheme since the Great Recession, Morgan is thought to have used his Morgan Mezzanine Fund Manager and Morgan Acquisitions entities to deceive investors and some of the country’s largest financial institutions, including Fannie Mae and Freddie Mac. Morgan is believed to have scammed these institutions into awarding him larger mortgages than normal by telling elaborate lies to pass off properties as worth far more than they were.
Morgan is also believed to have used new investor funds to pay off old investors to cover up the fraud and keep the real estate investment scheme going. The Department of Justice alleges that Morgan kept two sets of books: one with accurate information and the other for servicing loans. Morgan and four others have also been indicted for making insurance claims on repairs to apartments that cost more than they actually did.
About Robert Morgan
Until 2019, Robert Morgan was a pillar of the Rochester community. He was widely admired for having reinvented himself after being paralyzed from the waist down from a gunshot wound sustained during the robbery of his family’s store in 1991. His paralysis forced him to find a new line of work, and he spent the next few decades transforming into a real estate investor. Morgan has partnered with many institutions over the years, including the TM Montante Development group.
Progress of the Indictment
The indictment of Morgan began with charges against his former chief operating officer, a related mortgage broker, and a nephew, Todd Morgan. All three entered guilty pleas, and charges against Morgan came a week after the number two man at Morgan Management pleaded guilty to fraud and accused Robert Morgan of taking part.
After an FBI raid on Morgan’s offices in Rochester in 2018, indictments were brought against Robert Morgan and four others, two of whom pleaded guilty and have been cooperating with the FBI in the investigation.
$63 Million in Repayments
The $63 million the federal court has ordered Morgan to pay back was the amount still owed to investors when the scheme was revealed. A receiver has been appointed to oversee the liquidation of assets and generate funds to maximize recovery for investors.
While the outcome of the indictments has yet to be determined, the Robert Morgan story serves as a warning to all investors to exercise caution and due diligence before making a real estate investment.
Read official press release from DOJ, US Attorney’s Office NY: https://www.justice.gov/usao-wdny/pr/robert-morgan-three-others-indicted-multi-million-dollar-mortgage-fraud-scheme
Related real estate investment news: https://veritasnews.com/buyer-beware-buying-tax-liens-know-youre-getting/