'Something Bad Brewing': Behind The Charges Against Todd Hitt And The Last Days Of Kiddar Capital
Todd Hitt, who was charged with eight counts of securities and investment fraud Friday, told employees nearly three weeks ago at the private equity firm he founded, Kiddar Capital, to stop coming into work, that the company can no longer operate and that he would get in touch to close out payroll obligations, a source told Bisnow.
“We’ve all had a suspicion that there’s something bad brewing, but this caught us off guard,” said a former employee, who asked to remain anonymous.
Kiddar employed roughly 10 people in the company’s Falls Church office, the source said. He said employees had noticed strange occurrences in the previous weeks, such as Hitt instructing them to back up computers and make copies of certain documents.
Hitt is a member of the well-known D.C. real estate family behind Hitt Contracting. He was arrested Friday by FBI special agent Gregory Fine. He appeared at 2 p.m. later that day at the U.S. District Court for the Eastern District of Virginia in front of U.S. Magistrate Judge John Anderson.
The Department of Justice and the Securities and Exchange Commission concurrently filed charges against Hitt alleging a four-year fraud scheme in which he lied to investors about contributing his own money to real estate and technology ventures. He was also charged for using investor funds for personal expenses without their knowledge. Hitt reached a settlement with the SEC, but the DOJ continues to pursue its case against him.
At his Friday court appearance, Hitt was represented by David Dickerson, David Schertler and Danny Onorato of D.C.-based Schertler & Onorato LLP. Hitt and his attorneys did not respond to requests for comment. The government, represented by Assistant U.S. Attorney Mark Lytle, did not seek detention for Hitt and released him with a set of conditions.
The court ordered Hitt to cease all operations of Kiddar Capital and its related entities. It ordered him to report to Pre-Trial Services and hand over his passport and give access to his financial records. It also prohibited him from opening a line of credit, leaving the D.C. area or beginning new employment without Pre-Trial Services approval, and said he cannot contact any potential witnesses.
The FBI’s criminal investigation and the SEC’s civil investigation were launched after two employees contacted the FBI with allegations that Hitt was misappropriating and commingling investor funds and soliciting new investments with documents that contained falsehoods.
Among those alleged falsehoods was the claim that Kiddar has $1.4B in assets under management and has offices in Houston, Palm Springs and London. One of the employees, whom the affidavit refers to as Employee A, tried to account for all of Kiddar’s assets and could only come up with $27M.
"Those numbers were overstated because he was claiming ownership of a percentage of Hitt Contracting," the former employee told Bisnow. "The assets we had under control were nowhere near that; essentially three commercial properties and a handful of home development projects."
The ongoing criminal case centers around Kiddar’s February acquisition of a building along the Silver Line in Herndon. Hitt obtained a $24M loan for the building and told investors he was putting in $6M in equity to match a $6M investment from a series of limited partners. But the DOJ affidavit said Hitt never invested his or Kiddar’s money in the deal. It said he received $10.92M from investors but only needed $8.86M in equity for the acquisition.
Hitt then used that extra money to pay back investors for unrelated ventures and to pay off a $230K credit card bill, the affidavit said. The charges on the bill included $59,220 to luxury jewelry brand Bulgari, $52,997 to private flight chartering service Chantilly Air, $26,910 to Canyon Ranch Resort, $33,110 to Ultimate Jet Vacations and $7,791 to an expense labeled "NBA-Washington Wizards."
The FBI spoke with four investors, whose contributions ranged from $500K to $6M. Two of the investors provided the FBI with emails and documents showing that Hitt said he was contributing his own money to the Herndon deal, which the affidavit alleges is false.
EagleBank provided the loan for the Herndon acquisition. EagleBank CEO Ron Paul said the company is “comfortable with the underwriting that was done on these projects,” but declined to provide further comment.
In addition to the Herndon deal, the SEC complaint also details two unrelated ventures in which Hitt improperly used investor funds. It said he raised at least $4.5M from at least 15 investors to finance the construction of 11 homes, mostly in Northern Virginia. It said Hitt commingled the investors’ money with unrelated investments without their knowledge and misappropriated a significant portion of the investments for personal expenditures.
The complaint also said Hitt raised $2M from at least five investors to fund startup company Aquicore, but only invested $1M of the funds and kept the other $1M for himself. It said he also misstated his personal contributions to the investments.
Kiddar announced in a February 2017 news release it was raising $25M for a 10-year fund with targeted returns of 20%. The release stated that Kiddar had $600M in assets under management.
Kiddar announced in February 2018 that it is moving its headquarters to a 74K SF Falls Church office building it planned to construct with Insight Property Group. The release said Kiddar manages $1.4B in assets and has four offices worldwide, claims the SEC said were inflated. Insight said it plans to move forward with the project, dubbed Broad & Washington, without Kiddar.
"Insight Property Group remains fully committed to Broad & Washington and delivering an exceptional development that serves the growing residential, business and arts community," Insight partner Maury Stern wrote in an email. "To that end, we have, and will continue to, pursue options and work with the City to redevelop Broad & Washington without Kiddar Capital as a tenant of the office building."
Ethan Rothstein contributed reporting to this story.
UPDATE, OCT. 8, 4:05 P.M. ET: This story has been altered from its original version due to information that could not be independently confirmed by Bisnow.