Friday, June 5, 2015
Real estate investment firm owners arrested for $17M fraud scheme
The former Chief Executive Officer and Chief Operating Officer of Cabot Investment Properties were arrested for allegedly participating in a scheme to defraud investors in numerous real estate investments by misappropriating over $17 million to pay for personal and business expenses and covering up their fraud with manipulated financial statements.
Carlton Cabot, 52, of Stamford, Connecticut, and Timothy Kroll, 44, of New Hope, Pennsylvania, are expected to be presented and arraigned before U.S. Magistrate Judge Henry Pitman.
According to the allegations contained in the criminal complaint unsealed in Manhattan federal court:
From 2003 through 2012, Cabot Investment Properties - which was controlled by Cabot and Kroll - sponsored and oversaw approximately 18 so-called tenants-in-common securities offerings to investors located all over the United States. A TIC investment is a real estate investment in which investors collectively own a piece of commercial real estate and are entitled to receive a portion of the rental income from the property.
From 2008 through 2012, Cabot and Kroll engaged in a scheme to defraud the TIC Investors by misappropriating funds belonging to the TIC Investments and concealing their misappropriations by providing false and misleading financial reports and other information to the TIC Investors.
According to the representations in the offering prospectuses for the TIC Investments, CIP was only allowed to collect "excess" rental income from the TIC Investments - i.e., any additional money left over after the TIC Investments had paid the operating expenses for the properties and the disbursements due to the TIC Investors. Despite these representations, Cabot and Kroll repeatedly transferred money out of bank accounts belonging to the TIC Investments and into CIP bank accounts that they controlled (the "CIP Operating Accounts") before the TIC Investments could use the funds to pay for operating expenses and disbursements to the TIC Investors.
Cabot and Kroll then used these funds to pay for the following three unauthorized purposes, without the knowledge or authorization of the TIC Investors:
Cabot and Kroll caused millions of dollars to be transferred from the CIP Operating Accounts to the bank accounts of TIC Investments that had no available funds to cover their operating expenses and investor distributions. In this way, Cabot and Kroll were able to perpetuate the fraud scheme by propping up failing TIC Investments using funds belonging to other TIC Investments.
Cabot and Kroll used the funds in the CIP Operating Accounts belonging to the TIC Investments to pay for millions of dollars of personal expenses, including expensive cars and rental apartments and private school tuitions.
Cabot and Kroll used the funds in the CIP Operating Accounts belonging to the TIC Investments to pay for CIP business expenses, including an approximately $1,125,651 civil settlement to certain TIC Investors who had sued Cabot, Kroll, CIP, and a CIP subsidiary.
To conceal their misappropriation of TIC Investment funds from the TIC Investors, Cabot and Kroll provided false and misleading financial reports to the TIC Investors that intentionally hid the fact that CIP owed large sums of money to the TIC Investments. Kroll also gave false and misleading information to the TIC Investors about how the TIC Investment funds were managed in order to prevent the TIC Investors from learning the true financial status of their investment.