Todd Hitt wanted to be big-time, but his lies have landed him in handcuffs. He claimed that the firm he founded, Kiddar Capital, had over $1.4 billion in assets under management, offices in Falls Church, Houston, Palm Springs, and London, and was put $6 million of the firm’s money into developing a Herndon, Virginia building adjacent to a future stop on the Silver Line of the D.C. Metro.
According to a complaint by the Securities and Exchange Commission and the Department of Justice, none of that was true.
Mr. Hitt solicited investors into the real estate deal, with Kiddar putting in $6 million, investors putting in $6 million and the rest of the capital from a $24 million bank loan. Mr. Hitt was good at the fundraising because he raised almost $10 million, some of that coming after the offering closed. The capital needs of the project were reduced by seller credits, requiring less than $9 million in equity after the bank loan. The complaints allege that Hitt transferred the extra cash for personal use or other projects and never put any of Kiddar’s own capital into the commuter rail station project.
The SEC is involved so this must mean securities fraud. It’s clearly a real estate transaction. One question is whether Kiddar Capital was selling interests in the real estate that could be considered securities.
According to the SEC complaint, the offering memorandum stated that it was “a private offering exempt from the registration requirements of the Securities Act of 1933.” The SEC also pleads that “investors relied entirely on, and expected profits solely from, the efforts of Defendants to manage their investments” in Class A membership interests in the real estate purchaser. That’s the brief description of the Howey test.
How did Mr. Hitt get caught?
According to the criminal action, two employees of Kiddar Capital contacted the FBI about Hitt, alleging that he was stealing investor funds or commingling investor funds. Each thought things were strange and had trouble tying together financial claims.
One of those whistleblowers tried to tried to reconcile the representation that Kiddar Capital had $1.4 billion in assets. That employee only came up with $27 million. The other employee tried to find the other Kiddar Capital offices and couldn’t.
For me, the key thing was the statement that Mr. Hitt was spending lavishly, but had liquidity trouble. The example in the criminal complaint is that Mr. Hitt employed a personal driver, but had trouble funding payroll at times. A sure way to lose employees is to not pay them.
It’s easier to be whistleblower and risk losing your job when your not getting paid anyhow.
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