A dispute between a former compliance officer for broker-dealer Cabot Lodge Securities and its owner, Jacob Frydman, has boiled over into a whistleblower complaint now in the lap of the Securities and Exchange Commission.
The former Cabot Lodge executive, Al Akerman, on Feb. 6 sued Mr. Frydman and Cabot Lodge in New York State Supreme Court, alleging he was fired in December after reporting “certain improprieties” to authorities, including the Financial Industry Regulatory Authority Inc. The specific details of transactions in question, however, were redacted in the complaint.
A week later, Mr. Akerman sent a letter to the SEC's Office of the Whistleblower, regarding “apparent accounting irregularities and alleged fraud with United Realty Trust Inc.,” a nontraded real estate investment trust of which Mr. Frydman is the chief executive. Cabot Lodge is the wholesaling and marketing broker-dealer that distributes the nontraded REIT to at least 30 independent broker-dealers.
Mr. Akerman's whistleblower letter, and a response from United Realty filed on Tuesday, focus squarely on the REIT's April 2013 reporting of a $1.15 million ownership interest in two properties in Poughkeepsie, N.Y.
Mr. Frydman in March 2013 was informed that “the REIT was going to fail an asset test because of a $1.15 million liability that was owed to the REIT by its adviser, United Realty Advisors LP,” according to Mr. Akerman's letter to the SEC. “Rather than return this cash to the publicly-owned REIT, (Mr.) Frydman allegedly came up with a scheme to defraud the investing public, and essentially replace the $1.15 million debt owed to the REIT with a mortgage note on a property purportedly only worth a fraction of the debt owed.”
United Realty's response to Mr. Akerman, signed by the firm's general counsel, Daniel Edelman, and filed with the Office of the Whistleblower, calls into question Mr. Akerman's veracity as well as disparaging the notion that the accounting of the mortgage note was questionable.
Mr. Akerman's letter "fabricates facts and makes false claims in order to seek to justify his criminal behavior discussed below, which he wishes to conceal under a claim of being a whistleblower,” according to Mr. Edelman's letter. And the REIT “would never make less than the $1.15 million from the investment” in the mortgage note, according to Mr. Edelman's letter.
Mr. Akerman did not return a call on Wednesday to comment. In an email to InvestmentNews, Mr. Frydman's attorney, Lanny Davis, said the whistleblower claim was without merit.
“First, the transaction Akerman complains about occurred more than two years ago — and he never complained as compliance officer to management or the SEC,” Mr. Davis said in his email. “Second, the transaction was audited and approved by our independent directors, attorneys, Proskauer, and our auditors, Ernst & Young.”
“Third, the charges Mr. Akerman makes in the SEC letter are categorically false, and we are confident the SEC will so determine, as well as questioning the credibility of Mr. Akerman as a 'whistle-blower,' as his own emails and misuse of the court and now release of his letter to the SEC to the media demonstrates," according to Mr. Davis.
Meanwhile, adding confusion to the matter, a local New York investor, Joe Spiezio, said in an interview on Wednesday that he and a group of investors own the note in question.
“My group owns the note and we own the deed,” Mr. Spiezio said, adding that he is in litigation with Mr. Frydman in Dutchess County, New York. “At the end of the day," this has nothing to do with United Realty.
Mr. Spiezio's claim is not accurate because the note in question “was deemed paid in full,” according to an email from Mr. Frydman.
Mr. Frydman is currently engaged in an ongoing legal dispute with his former partner, Eli Verschleiser, who resigned on Dec. 3, 2013, as president, treasurer and director of the REIT, according to a filing with the SEC. The litigation between the two has been ongoing. For example, in October, Mr. Frydman sued Mr. Verschleiser in federal court in New York, alleging he had walked away from the firm with data about deals and potential business partners.
On Dec. 15, Mr. Akerman was told by Mr. Frydman and Mr. Gould that he was being “terminated” from his job as compliance officer at Cabot Lodge.
According to his profile on BrokerCheck, Mr. Akerman was “discharged” from Cabot Lodge. Cabot Lodge management “has filed a restraining order against Mr. Akerman and the recipients of the information to not allow further dissemination and to destroy all documents,” according to BrokerCheck.
Mr. Akerman has no other reported events on his BrokerCheck profile.
In his complaint, Mr. Akerman said he was "terminated for his reluctance to follow (Mr. Frydman's) mismanagement directives and overlook other violative actions.”
Copies of e-mails given to InvestmentNews by United Realty show Mr. Akerman corresponded with Mr. Verschleiser after he left the company. The REIT claims that Mr. Akerman passed along confidential information to Mr. Verschleiser.