Max McDermott of Newport Beach, California, was arrested on federal charges that he obtained a $10 million loan by hiding an active SEC investigation from the lender, then funneled the money to cover obligations tied to a separate alleged $100 million investor fraud. The Southern District of New York charged McDermott with wire fraud and money laundering, accusing him of designing the scheme specifically to outmaneuver regulators already closing in on his real estate investment business.
How a hidden SEC probe became the centerpiece of a fraud indictment
The criminal case against McDermott sits at the intersection of two enforcement actions that, read together, reveal a pattern: a defendant allegedly using borrowed money to manage the fallout of a civil regulatory investigation rather than to grow a legitimate business. Prosecutors say McDermott sought the $10 million loan under false pretenses, telling the lender the funds would support other ventures while concealing the fact that the SEC was already investigating his firm. That omission is now the core of the wire fraud case.
The timing matters. The SEC had separately charged Secured Income Group, Inc., McDermott, and co-defendant Stacey Porter with offering fraud, alleging the firm raised approximately $100 million from hundreds of investors between July 2017 and January 2021 through misrepresentations about returns and asset safety. According to the civil complaint, investors were told their money would be placed in first-lien real estate loans and other secured assets, but regulators say significant portions of the funds were instead diverted, misused, or exposed to higher risk than disclosed.
By the time McDermott allegedly approached the private lender for the $10 million loan, that SEC enforcement action was already in motion. Prosecutors contend he knew the investigation threatened to freeze assets and disrupt cash flow, yet he did not disclose that risk to the lender. Instead, he is accused of presenting the loan as routine financing for ongoing business operations, omitting the looming regulatory jeopardy that could impair his ability to repay.
The federal indictment alleges that once the loan closed, McDermott quickly laundered and misused the proceeds, routing them through multiple accounts and entities to repay other obligations and plug shortfalls. Rather than deploying the money as promised, he allegedly used it to stabilize a capital structure already under strain from the SEC’s scrutiny. Prosecutors say this conduct transformed a private credit deal into a vehicle for fraud, with the lender unknowingly financing efforts to manage the fallout of the separate investor scheme.
This sequence suggests a calculated bet: secure outside capital quickly enough to satisfy creditors or settle exposure before an asset freeze could lock everything down. When defendants face both civil and criminal risk simultaneously, bridge loans can function as short-term shields, buying time against regulatory actions that threaten to immobilize assets. The gap between the SEC’s civil filing and the subsequent criminal docket in this case illustrates how that timing window can be exploited in practice, with lenders left in the dark about the true risk profile of the borrower.
The $100 million fraud allegation behind the $10 million loan
The criminal charges do not exist in isolation. The SEC’s case against Secured Income Group provides the backstory that makes the loan fraud allegations so damaging. Regulators say the company pitched itself as a conservative, income-producing vehicle, promising steady returns backed by real estate collateral. In reality, according to the enforcement filing, investor funds were concentrated in a limited number of projects, exposed to development risk, and in some instances used in ways that were not fully disclosed to those who supplied the capital.
For hundreds of investors, many of whom believed they were buying relatively safe, fixed-income style products, the SEC’s allegations describe a starkly different risk profile than the one marketed to them. The agency claims that McDermott and Porter overstated the security of the underlying loans, understated default risk, and failed to provide accurate information about how proceeds were being deployed. Those alleged misstatements underpin the broader $100 million offering fraud narrative that regulators say unfolded over several years.
The $10 million loan, prosecutors argue, was not a separate business transaction but an extension of that same pattern. By using new money to cover old obligations while under active investigation, McDermott is accused of deepening the harm to both investors and the lender. If proven, the conduct would illustrate how pressure from one enforcement action can spill into new arenas, as a defendant seeks fresh capital to manage mounting liabilities without candidly disclosing the full picture.
For investors, the addition of wire fraud and money laundering counts introduces the possibility of criminal restitution orders on top of any civil disgorgement and penalties that might result from the SEC case. For lenders and other market participants, the allegations highlight the importance of probing for undisclosed regulatory issues when extending credit, especially to firms that raise money from the public. And for regulators and prosecutors, the McDermott matter underscores how civil and criminal tools can converge when a borrower allegedly uses new financing not to build a business, but to stay one step ahead of accountability.
Warren Cohen is a finance writer based in Phoenix, Arizona, covering personal finance topics including credit, banking, and beginner investing. He earned his degree in business administration from Arizona State University and began his career working in consumer finance, where he gained direct experience with lending and credit systems. He now writes for personal finance websites and fintech platforms, focusing on clear, practical content that helps readers make informed financial decisions.
