Securities Lawyers Blog
According to the United States Attorney for the Southern District of New York and several other government agencies, Carlton Cabot (Cabot) and Timothy Kroll (Kroll) the former Chief Executive Officer and Chief Operating Officer of Cabot Investment Properties LLC (Cabot Investment), were arrested on charges of defrauding investors in numerous Cabot Investment-sponsored real estate investments by misappropriating over $17 million to pay for personal and business expenses and thereafter covering up their fraud with manipulated financial statements. Regulators stated that the two’s greed overcome honest business practices. In the end, the regulators say that the defendants stole from their investors to fund their lavish lifestyle.
According to the release, from 2003 through 2012, Cabot Investment – which was controlled by Cabot and Kroll – sponsored approximately 18 tenants-in-common (TIC) securities offerings to investors. Those investments included:
- 20 North Orange
- 465 Cleveland Ave.
- 550 Polaris
- Addison Corporate Center
- Ashtabula Mall
- Central Station
- Corporate Center
- Cypress Creek Tower
- Dad eland Towers North
- East Town Mall
- Falls Point
- First Tennessee Plaza
- Multi Tenant Office-Jackson Michigan
- North Park
- North University Drive
- Oak Grove Plaza
- Old National Bank
- Polaris Parkway
- Trafalgar, Avion
- Turfway Ridge I & II
- Village Shoppes at Creekside
TICs are private placements that and are illiquid investments. These products have been promoted to investors as appropriate section 1031 exchanges allowing the investor to deferral taxes on appreciated real property. In a typical TIC, the investor receives a fractional interest in the property along with other stakeholders and the profits are generated mostly through the efforts of the sponsor and the management company that manages and leases the property. TIC investments entail significant risks. FINRA has warned that the fees and expenses associated with TICs, including sponsor costs, can outweigh the any potential tax benefits associated with a Section 1031 Exchange.
From 2008 through 2012, the district attorney alleged that 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 funds’ prospectuses Cabot Investment was only allowed to collect “excess” rental income from the TIC Investments. Despite these representations, the district attorney found that Cabot and Kroll transferred money out of bank accounts belonging to the TIC Investments and into Cabot Investment bank accounts that they controlled before the TIC Investments could use the funds to pay for operating expenses and disbursements to the TIC Investors.
The government agencies alleged that by the end of 2012, when Cabot Investment ceased its operations, Cabot Investment, Cabot, and Kroll owed approximately $17 million to the TIC investments that has never been repaid.
Investors who have suffered investment losses may be able recover their losses through arbitration. The attorneys at Gana Weinstein LLP are experienced in representing investors in cases of unsuitable TIC recommendations and other breaches of brokerage firm’s obligations to the customers. Our consultations are free of charge and the firm is only compensated if you recover.