McKinley Mortgage officials to pay $3 million in fines after ‘bilking’ retail investors

Heads of a large real estate investment company with offices in Alaska and California have agreed to pay $3 million in fines for what a federal agency says was a scheme to "bilk" hundreds of investors out of millions of dollars.

The missteps largely involve McKinley Mortgage in Redding, California, and an investment fund it manages, according to the U.S. Securities and Exchange Commission.

But the problems extend to McKinley Mortgage in Anchorage and the man who founded the company in Alaska in 1989, Tobias Preston, 55, a former fisherman from Homer who is president of both companies.

A lawyer for McKinley Mortgage said Tobias agreed to quickly settle the case to save money that can be used to pay investors, rather than fighting a costly court battle.

McKinley's website says it's the largest private lender in Alaska and a nationwide buyer of mortgage notes, which have value in part because they carry a promise of repayment from homeowners.

The SEC, a white-collar crimes unit designed to protect investors, brings civil lawsuits, not criminal. The agency on Thursday announced a settlement tied to a complaint the agency had brought against the companies, Preston and others in U.S. District Court in Sacramento. Anti-fraud provisions and registration requirements of federal securities laws were violated, the SEC said.

Malcolm Segal, a Sacramento attorney for the company, said the settlement is neither an admission nor denial of wrongdoing by the defendants.


Tobias will pay $2.5 million in civil penalties, according to the settlements.

His brother Charles Preston, 34 and a Chugiak resident, will pay $425,000. Tobias' son, Caleb Preston, 28 and a Girdwood resident, will pay $150,000, the agency said.

The Prestons and the company also agree to repay investors some $30 million that the agency asserts was misused.

The operators of the business "engaged in a years-long scheme to bilk hundreds of investors – including many retail investors – out of millions of dollars," the SEC said in its announcement.

Many of the 300 or so investors in the Alaska Financial Company III fund were small-scale. Some were Alaska Native corporations. Some were financially "unsophisticated," the agency said.

The fund invested in real estate assets and promised predictable, healthy income for investors.

But it lost money for years and was insolvent by 2012. Still, the Prestons kept raising money and providing false documents to investors, saying the fund generated strong annual returns, the SEC asserts.

Segal said Tobias Preston has a long relationship with many of the investors, lots of whom are Alaskans.

"The goal is to see the investors are made whole," Segal said. He would not disclose investors' names.

The SEC says the company raised $66 million for the fund between 2012 and 2016.

Some of the money was invested as promised.

But Tobias Preston misappropriated $17 million for personal business and lifestyle expenses, including purchasing a $1.7 million home at a luxury resort in Mexico, the agency said.

He also improperly used $14 million to cover operational costs for the Redding company, the agency said.

Charles Preston, who managed the Alaska company and co-owned the Redding company, improperly used about $875,000 from the investment fund and another McKinley Mortgage fund, the SEC asserts. Some of the money went to pay for a down payment on his house, debt and personal credit card bills.

About $340,000 was wrongly used to pay for business expenses at the Alaska office, the SEC said.

Caleb Preston, who managed the California company's marketing arm, joined Charles in hiding the fraud "by preparing or distributing investor materials with false information," the agency said. They concealed information from auditors, the agency said.

Caleb also received about $345,000 in "unlawful commissions," the court complaint said. He'd never registered as a broker with the commission and was not associated with a registered broker-dealer.


Phone calls to the companies in Anchorage and Redding, seeking comment from the Prestons, were not returned Monday.

Segal said much of the dispute with the SEC involved a substantial amount of money invested into development projects in the Mexico resort area that he did not name.

The investments were designed to generate income for the fund, Segal said.

He said the SEC felt those investments were not properly disclosed to investors in original fund documents.

"The SEC says you shouldn't have done that under the offering document, and the business answer to that is well, it was a good investment," Segal said.

The purchase of the house in Mexico was also a real estate investment allowed under the fund's loan because Tobias Preston was allowed to borrow money against the fund, Segal said.

The house wasn't necessarily for Tobias, he said. Also, new companies had to be established to develop the property in Mexico.

Investments into those Mexico assets still will be used to benefit investors under the settlement, and might generate large returns as originally planned, Segal said.

As part of the settlement, the fund and California office will get new managers, the agency said. The fund will eventually be shut down.

Alex DeMarban

Alex DeMarban is a longtime Alaska journalist who covers business, the oil and gas industries and general assignments. Reach him at 907-257-4317 or