Connecticut Man Sentenced in Connection with Tax-Free Property Exchange Business
|U.S. Attorney’s Office February 27, 2014|
BOSTON—A Connecticut man who victimized exchangors in Massachusetts was sentenced yesterday for his role in a mail and wire fraud scheme involving a tax-free property exchange business.
Daniel E. Carpenter, 59, of Simsbury, Connecticut, was sentenced by U.S. District Court Judge George A. O’Toole to 36 months in prison, three years of supervised release, and a $100,000 fine. In June 2008, Carpenter was convicted of 19 counts of mail and wire fraud following a 13-day jury trial.
Carpenter was charged with mail and wire fraud in connection with his handling of money entrusted to him by clients who engaged in tax-deferred real estate exchange transactions from August to December 2000. Under the relevant federal tax code provision, sellers of investment real estate were permitted to defer capital gains taxes on sale proceeds, provided they purchased a like property within six months and did not take possession of the sale proceeds during the interim. Carpenter owned a company, Benistar, which acted as an intermediary for these exchanges, holding clients’ money pursuant to escrow agreements until they purchased a replacement property. Carpenter, through Benistar, marketed his services as a qualified intermediary using materially false and misleading statements in marketing materials and contracts. The documents omitted critical information about Carpenter’s risky investment strategy, while at the same time emphasizing the importance of the safety and security of the funds and representing that Benistar would “invest” the exchangors’ money in low-yield “escrow” accounts for the exchangors’ benefit at established financial institutions. Carpenter obtained millions of dollars from clients engaged in these property exchanges and, without telling them, used their money to trade in high-risk stock options in an attempt to earn substantial profits for himself and Benistar, even as the exchangors’ earnings were capped at the modest rates of return reflected in the agreements.
Carpenter’s high-risk strategy was unsuccessful, and he lost more than $9 million of the exchangors’ money. As Carpenter’s options trading losses mounted, Benistar’s available funds fell millions of dollars short of the sums needed to repay clients as they redeemed their escrow funds. Carpenter’s actual use of the escrow funds came to light when clients who needed to complete their property exchanges discovered their money was gone.
United States Attorney Carmen M. Ortiz and Vincent B. Lisi, Special Agent in Charge of the Federal Bureau of Investigation, Boston Field Division, made the announcement today. The case was prosecuted by First Assistant United States Attorney Jack W. Pirozzolo.