by Brian Mahany
I am writing this post from a picnic table on the banks of the Ohio River in Rabbit Hash (Boone County), Kentucky. A few minutes ago I left the Boone County Courthouse after fighting to protect the interests of two dozen families, many of them senior citizens who have been defrauded of much of their life savings.
The setting here could not be more beautiful. Early spring, 80 degrees and the forsythias in full bloom. The local paper – it’s a weekly paper with just a few pages – has stories about the installation of a new traffic light, the annual Easter egg hunt and a front-page headline, “Seniors Wear Their Easter Best.” On the surface, this is a happy place with few worries. Unfortunately, evil does not recognize geographic boundaries.
The case that brings us to Boone County involves Carlton Cabot, a developer from Boston, Massachusetts. In his heyday, Cabot claims to have raised $1.5 billion for a wide variety of real estate projects including shopping centers and office buildings. Much of that money represents the life savings of investors hoping to generate an income stream to carry them through their retirement years.
As lawyers, we frequently see projects where investors lose their money. It’s bad enough when anyone loses his or her money. It’s even worse when the victims are senior citizens – people who worked hard their entire lives and hoped for a peaceful retirement. Unfortunately, for investors in the Cabot Turfway Ridge project, the story gets much worse.
If the lender has its way, investors in Turfway Ridge could not only lose their entire investment but may find themselves on the hook for a deficiency judgment if the property must be sold. It’s bad enough to lose one’s entire investment but to potentially be on the hook for millions more is unfathomable.
Until these cases began, most Cabot investors – and there are hundreds of them all over the United States – never heard such terms as Commercial Mortgage-Backed Securities, “springing guaranties” or “bad boy” provisions. While Carlton Cabot and his minions lived a life of leisure, many of his investors are now left scrambling and hoping to make ends meet. Some have gone back to work. Some may be forced into bankruptcy. For almost all, Cabot’s actions mean dreams lost forever.
In our opinion, there are many people responsible for these frauds. Obviously, Cabot is at the top of our list. The stockbrokers and financial advisors who sold these investment “opportunities” may have some fault too. And certainly the banks and loan servicers who seek to chase the innocent victims (investors) for Cabot’s wrongdoing may have some ethical, legal and moral responsibility as well.
It appears that everyone involved in these transactions made money. Everyone except the investors.
So what happened? Each Cabot investment scheme is a bit different but they share common themes. Many of these deals were overpriced from the beginning. As long as the economy and real estate market kept growing, the problems remained hidden. Once the market softened, however, the problems surfaced.
Our investigation reveals that when the economy soured, Cabot began misappropriating money. Stealing. Instead of paying the mortgages and other bills, he began robbing Peter to pay Paul.
If that were all that happened, the situation would be bad enough. Unfortunately, buried in the fine print of the paperwork for most investors were personal guaranties. These so called “springing guaranties” say that the investor can be held responsible if the master tenant (Cabot) fails to pay the mortgage, diverts funds or commits other wrongful acts.
By simply taking a few bucks here and there, Carlton Cabot potentially put his investors on the hook for millions. Luckily, judges and lawmakers are beginning to realize the fundamental unfairness of such actions. Even assuming the investors are successful on the personal guaranty issues, however, they may still lose their investment and must endure significant legal fees and sleepless nights before they get their day in court.
The fate of Carlton Cabot remains to be seen. At some point, the feds or some other law enforcement agency will likely track him down and bring him to justice. He certainly doesn’t have enough money to repay all his investors, however. Many will never be made whole. While seeing Cabot in an orange jumpsuit may give some comfort to his victims, it doesn’t get their money back or absolve them of the additional claims caused by the hidden personal guaranties.
We invite others with Cabot stories to share them. You can email us privately. If you do, let us know if we can publish your story and whether you wish to remain anonymous.
The law firm of Mahany & Ertl represents victims of fraud. We can help get back your hard earned money or defend you if a lender or noteholder is threatening to sue you under some “bad boy,” personal guaranty or “springing guarantee” theory.
Our fees are reasonable and we will entertain group representation where permitted and when it makes sense. We have extensive real estate fraud, tenant-in-common (TIC) and fraud recovery experience that we will gladly bring to bear on your behalf.
Mahany & Ertl – America’s Fraud Lawyers. Offices in Milwaukee, Wisconsin; Detroit, Michigan; Portland, Maine; Minneapolis, Minnesota and San Francisco, California. Services available in many jurisdictions.
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