Securities and Exchange Commission lawyers and Rochester real estate developer Robert Morgan have tentatively agreed to settle the SEC’s case against Morgan.
An SEC civil action accusing the Rochester-based developer of mortgage fraud and running a Ponzi scheme has been ongoing in the federal Western District of New York’s Rochester Division since May 2019.
Beginning with a few Rochester rental properties he purchased as a teenager, Morgan, who is now in his 60s, over several decades built a vast real estate empire worth hundreds of millions of dollars that spanned 14 states.
After the 2008 collapse of the U.S. real estate markets, he and a Saratoga County business partner in an eight-state portfolio of recreational vehicle parks surrendered properties worth more than $100 million to foreclosure. In following years, the rest of the Morgan empire began to crumble.
The $500 million mortgage fraud charge came out of an FBI investigation, which found that Morgan’s companies allegedly inflated its properties’ occupancy rates to obtain bank loans.
The Ponzi scheme charges stem from the SEC’s claims that Morgan’s companies falsely told investors who sank some $80 million into securities sold by Morgan that they would get returns from profits earned on Morgan-owned properties when Morgan in fact used money from later investors to pay dividends to earlier investors.
Facing the possibility of crushing fines and penalties, and with his assets frozen by the SEC, Morgan last October sold 90 of his Morgan Communities firm’s apartment complexes—roughly half of the portfolio—to the similarly named but unrelated Pennsylvania-based Morgan Properties. With the sale, several hundred Morgan Communities employees transferred to Morgan Properties.
Morgan said at time that he planned to use proceeds from the sale to pay principal and interest owed to investors in the alleged Ponzi scheme.
Attorneys for the SEC informed U.S. District Judge Elizabeth Wolford in a July 31 letter that they have reached a provisional deal to settle the civil action. The letter does not state details of the settlement, which needs to be reviewed by SEC staff before it can be finalized.
In a separately filed July 31 court document, Morgan’s attorneys describe themselves and SEC lawyers as engaging in “ongoing, good-faith settlement discussions.”
Wolford has ordered the parties to propose a consent order memorializing a settlement by Sept. 18.
Will Astor is Rochester Beacon senior writer.