Owner Of Real Estate Investment Firm Pleads Guilty To $17 Million Securities Fraud
Preet Bharara, the United States Attorney for the Southern District of New York, announced that CARLTON P. CABOT, the former owner and chief executive officer of Cabot Investment Properties LLC (“CIP”), pled guilty yesterday to one count of securities fraud for participating in a scheme to defraud investors in numerous CIP-sponsored real estate investments. As part of the fraud, CABOT and his co-defendant misappropriated over $17 million of investor funds to pay for personal and business expenses, and concealed the fraud from the investors with manipulated financial statements. CABOT pled guilty before U.S. District Judge Jesse M. Furman.
U.S. Attorney Preet Bharara said: “Yesterday, Carlton Cabot, CEO of Cabot Investment Properties LLC, admitted to taking over $17 million in investor funds and spending it on himself, including for private school tuition for his family and a luxury vacation apartment. Cabot camouflaged his fraud by doctoring financial statements and lying to his investors.”
According to the allegations contained in the criminal complaint against CABOT, the indictment to which CABOT pled guilty, and statements made during CABOT’S plea proceeding:
From 2003 through 2012, CIP – which was controlled by CABOT – sponsored and oversaw approximately 18 so-called tenants-in-common (“TIC”) securities offerings to investors located all over the United States (collectively, the “TIC Investments” and the “TIC Investors”). 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 engaged in a scheme to defraud the TIC Investors by misappropriating funds belonging to the TIC Investments and concealing his misappropriations by knowingly 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 repeatedly transferred money out of bank accounts belonging to the TIC Investments and into CIP bank accounts that he controlled (the “CIP Operating Accounts”) before these funds could be used to pay for operating expenses and disbursements to the TIC Investors.
CABOT then used these funds to pay for unauthorized purposes without the knowledge or authorization of the TIC Investors, including: (1) to cover the operating expenses and investor distributions of other TIC Investments that had no available funds; (2) to pay for millions of dollars of personal expenses, including expensive cars, rental apartments, and private school tuition; and (3) to pay for CIP business expenses, including an approximately $1,125,651 civil settlement to certain TIC Investors who had sued CABOT and others.
To conceal the misappropriation of TIC Investment funds from the TIC Investors, CABOT and his co-defendant, Timothy J. Kroll, CIP’s chief operating officer, 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.
By in or about the end of 2012, when CIP ceased its day-to-day operations, CIP and its principals, CABOT and Kroll, owed approximately $17 million to the TIC Investments, which has never been repaid.
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CABOT, 53, of Stamford, Connecticut, pled guilty to one count of securities fraud, which carries a maximum sentence of 20 years in prison and three years of supervised release. According to the agreement with the Government to which he pled guilty, CABOT owes $17 million in restitution and forfeiture. CABOT is scheduled to be sentenced on September 15, 2016, before Judge Furman.
On October 7, 2015, Kroll pled guilty for his role in the scheme. Kroll is scheduled to be sentenced on July 19, 2016, before Judge Furman.
The maximum potential sentences in this case are prescribed by Congress and provided here for informational purposes only, as any sentencing of the defendants will be determined by the judge.
Mr. Bharara praised the outstanding efforts of the U.S. Postal Inspection Service and Internal Revenue Service’s Criminal Investigation Division.
The prosecution of this case is being overseen by the Office’s Complex Frauds and Cybercrime Unit. Assistant U.S. Attorneys Christian R. Everdell and Edward A. Imperatore are in charge of the prosecution.