Property Moguls Charged With $17M Fraud Scheme

     MANHATTAN (CN) – The heads of real estate firm already hit with lawsuits from coast to coast were arrested on Tuesday for allegedly treating $17 million in nationwide investments as their personal piggy banks, federal prosecutors said.
     Carlton Cabot, 52, of Stamford, Connecticut, and co-defendant Timothy Kroll, 42, of New Hope, Pennsylvania, are named in a criminal complaint accusing them of misappropriating investments in their company Cabot Investment Properties for projects in eight states.
     Money meant for operating the company instead financed college tuition for Cabot’s children, Kroll’s BMW, both men’s luxury apartments in Manhattan and Florida, and other personal and business expenses, prosecutors say.
     Between 2003 and 2007, Cabot Investment Properties (CIP) raised about $240 million in capital to sponsor 18 tenants-in-common investments (TIC) for commercial properties in Florida, Ohio, Wisconsin, Indiana, Connecticut, Kentucky, Georgia, and North Carolina, the 29-page complaint states.
     Toward the end of that period, the real estate housing bubble burst.
     “The collapse of the commercial real estate market that began in or about 2007, and the economic recession that followed, had a sharply negative effect on the profitability of commercial real estate investments, including the [tenants-in-common] investments sponsored by CIP,” the complaint states.
     In 2008, the company lost about $7.7 million roughly $7.2 million the following year, prosecutors say.
     “As a result, from in or about 2008 through in or about 2012, Carlton P. Cabot and Timothy J. Kroll, the defendants, engaged in a scheme to defraud the TIC investors by misappropriating funds belonging to the TIC investments to pay for personal and business expenses, and to keep failing TIC investments financially solvent, and then concealing their misappropriations by providing false and misleading financial reports and other information to the TIC investors,” the complaint states.
     Cabot and Kroll used money in company operating accounts for “millions of dollars of personal expenses, including expensive cars and rental apartments and private-school tuitions,” prosecutors say.
     “Between on or about April 1, 2010, and on or about April 30, 2010, approximately $27,500 was transferred from the CIP operating accounts to one of Cabot’s personal bank accounts,” the complaint states. “During that same month, a check totaling approximately $9,500 was drawn on Cabot’s personal account to pay for an apartment rental in Miami, Florida. In addition, throughout that same month, a total of approximately $18,085 was withdrawn from Cabot’s personal account to pay for daily living expenses.”
     Cabot transferred $41,867 in investor funds to a “private college located in Connecticut to pay for the college tuition of one of [his] children,” prosecutors say.
     A $12,790 wire transfer a year later went to a “private university in Pennsylvania” for college tuition for another of Cabot’s children, according to the complaint.
     Kroll allegedly spent $50,000 on his luxury Manhattan apartment, $40,000 on American Express card debt, $22,500 on a payment for a BMW, and transferred $40,00 to his personal bank account, prosecutors say.
     The men also transferred operating account funds for business expenses, including an “approximately $1,125,651 civil settlement to certain TIC investors who had sued Cabot, Kroll, CIP, and a CIP subsidiary,” the complaint states.
     Prosecutors do not specify what settlement Cabot and Kroll paid with operating account money. Investors filed a class action lawsuit against the company in California three years ago, and Massachusetts Secretary of State William Galvin lodged administrative fraud charges against the men last year.
     They face seven counts for securities fraud, wire fraud, money laundering, illegal monetary transactions and related conspiracy charges.
     The combined maximum penalties the charges carry add up to 115 years in prison.

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