Faced with an ongoing regulatory investigation into one of his companies, U.S. authorities allege that a man had another company take out a loan, which he used to repay investors in the first company, in an effort to stave off regulators.
According to an indictment handed down by a grand jury in New York, the founder of several real estate investment companies, Max McDermott, made “false and misleading representations” to secure a US$10-million business loan for one of his companies — purportedly to grow the business. But he actually used the proceeds to pay off investors in another venture that was facing an active investigation by the U.S. Securities and Exchange Commission (SEC), authorities said.
“In an effort to dissuade the SEC from taking enforcement action, McDermott sought to quickly repay investors of the company under investigation and borrowed money under false pretenses in order to do so,” the indictment alleged.
It also alleged that he hid the SEC investigation from the lender and laundered the proceeds of the corporate loan so he could use it to help repay investors in an effort to stave off regulatory action.
McDermott is now charged with wire fraud and money laundering.
The allegations have not been proven, and he is presumed innocent.
McDermott was arrested and is to be arraigned in California.