Carlton Cabot of Stamford, former owner and CEO of Cabot Investment Properties LLC (CIP) in Boston, has pleaded guilty to a $17 million securities fraud scheme taking place for several years.
According to a statement from Preet Bharara, U.S. attorney for the Southern District of New York, Cabot 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, and camouflaged his fraud by doctoring financial statements and lying to his investors.
According to Bharara’s office:
- From 2003 through 2012, CIP ”“ which was controlled by Cabot ”“ sponsored and oversaw approximately 18 tenants-in-common (TIC) securities offerings, a real estate investment in which investors collectively own a piece of commercial real estate and receive a portion of the rental income.
- From 2008 through 2012, Cabot engaged in a scheme to defraud the investors by misappropriating investment funds and concealing his misappropriations by knowingly providing false and misleading financial reports and other information to the investors.
- As part of the deal Cabot’s firm was only allowed to collect “excess” rental income from the TIC investments ”“ i.e., any additional money left over after operating expenses for the properties and disbursements due to the TIC investors.  Instead, Cabot repeatedly transferred money out of bank accounts belonging to the TIC investments and into his firm’s bank accounts, which he controlled, and used the funds to pay for unauthorized purposes including: to cover the operating expenses and investor distributions of other TIC investments that had no available funds; to pay for millions of dollars of personal expenses, including expensive cars, rental apartments, and private school tuition; and to pay for his firm’s 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 the funds from the TIC investors, Cabot and his co-defendant, Timothy J. Kroll of New Hope, Pennsylvania, CIP”™s chief operating officer, provided false and misleading financial reports to the TIC investors that intentionally hid the fact that the firm 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, the firm and its principals, Cabot and Kroll, owed approximately $17 million to the TIC investments, which has never been repaid.
Cabot pleaded guilty on May 31 to one count of securities fraud, which carries a maximum sentence of 20 years in prison and three years of supervised release. As part of his plea agreement, he owes $17 million in restitution and forfeiture. He is scheduled to be sentenced on Sept. 15.
Kroll pleaded guilty in October of 2015 for his role in the scheme and is scheduled to be sentenced on July 19.
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