Forensic audit catalogs Rishi Kapoor’s alleged improper spending

A forensic audit commissioned by the U.S. Securities and Exchange Commission traced embattled developer Rishi Kapoor’s alleged improper spending at Location Ventures and Urbin, the two Coral Gables-based development firms he founded. 

The 46-page report by Melissa Davis with Fort Lauderdale-based forensic accounting firm Kapila Mukamal is among hundreds of pages of exhibits attached to the SEC’s recent civil lawsuit against Kapoor, Location Ventures, Urbin and various affiliates. 

Kapoor referred questions to his attorney, Fred Schwartz. “The SEC and its paid accountant are wrong,” Schwartz said via email. “It appears the SEC and its accountant were led by false allegations of disgruntled employees and by several investors.”

These investors “used threats to improperly obtain tens of millions of dollars from Location Ventures at the expense of other investors and the companies,” Schwartz added. 

Once a rising developer in the South Florida market, Kapoor stepped down as head honcho of Location Ventures and Urbin over the summer, as both firms cratered under a bombardment of scandals and lawsuits. Kapoor is also allegedly the target of criminal investigations by county and federal law enforcement agencies. 

In its complaint filed in Miami federal court, the SEC alleges Kapoor defrauded more than 50 investors who contributed $93 million in equity in his real estate projects. Kapoor also allegedly misappropriated investor funds, buyer deposits and loan proceeds, including paying himself $4.3 million that he was not entitled to, the lawsuit states. 

This month, Chief U.S. District Judge Cecilia Altonaga, who is presiding over the SEC case, froze all assets belonging to Kapoor, Location Ventures, Urban and affiliates. Altonaga also appointed a receiver to take over all entities Kapoor previously managed, including Location Ventures and Urbin. 

Using bank records and financial statements of Location Ventures, Urbin and real estate projects the two companies were developing, Davis reconstructed a financial trail of transactions authorized by Kapoor between March 2018 until his resignation in July of last year. 

Here are the five most revealing conclusions from Davis’ analysis:

1. Commingling of investor funds 

Despite Location Ventures’ partial ownership stake in Urbin, both companies were supposed to be completely separate — though Kapoor had ultimate decision making power for the two firms. As a result, investor funds for Location Ventures and Urbin were commingled with more than $60 million transferred back and forth between the two firms and development project entities, Davis found. The commingling included a $14 million loan from Location Ventures to Urbin that hasn’t been paid back. 

2. Kapoor’s $4.3 million in unauthorized payments

Kapoor received fees that were not authorized and were not stipulated in the operating agreements for Location Ventures and Urbin. He collected $4.3 million between 2018 and March of last year. For instance, Location Ventures paid Kapoor $1.3 million in August 2022 that is marked as “contract labor expenses” in a general ledger reviewed by Davis. The payment came from the $14.2 million sale of Orduna Court, a 24-unit co-living apartment building in Coral Gables developed by Location Ventures. 

Location Ventures paid Kapoor, despite incurring a loss of $411,087 from the Orduna Court deal, Davis found. 

3. Co-living condo buyer deposits diverted from projects

Kapoor created Urbin as a real estate development firm solely focused on co-living condo and co-working office projects. Kapoor’s plan was to replicate the model nationwide after completing a slate of Urbin branded developments in Coconut Grove, Coral Gables and Miami Beach. But Davis discovered that at least $4.5 million in condo buyer deposits were used for purposes unrelated to a particular project. 

For instance, Urbin buyer funds held in escrow were used to pay fees to insiders and for a capital contribution on behalf of Location Ventures to buy a Coral Gables development site. Customer deposits from Urbin’s Miami Beach project were used to pay back Location Ventures investors, purchase land for Urbin’s Coconut Grove project and pay fees to insiders, Davis’ report states. 

4. New investor funds used to pay back previous investors and for other unauthorized purposes

Davis found multiple instances of investor funds totaling millions of dollars being used to pay previous investors. For instance, on March 10, 2022, the Urbin Coconut Grove project received $1.1 million from “Investor 65.” The same day, “Investor 49” received a $1 million payment from the Urbin Coconut Grove project’s bank account, Davis’ report states. 

In another example, “Investor 14” contributed $14 million to the Urbin Coconut Grove project in January 2022. The investor had an agreement that the funds would only be used to pay items in the planned development’s budget. The same day, the Coconut Grove project’s ownership entity paid Urbin $1.8 million, including six transfers totalling $111,666 that were recorded as “developer fees,” Davis found. 

5. No proof that Kapoor and his relatives invested money in Location Ventures

Kapoor, two of his family members, and Daniel Motha, a former Location Ventures executive, owned a 47.9 percent stake in the company through an entity called Patriots United. Kapoor informed investors that Patriots United had made a $13 million capital contribution into Location Ventures. The funds were marked as a “book entry” in company ledgers and other financial documents. But when Davis reconstructed Location Ventures’ bank records, she “found no evidence of any contribution or property from Patriots United,” Davis’ report states. 

Still, Patriots United received a capital distribution of $691,000 from the sale of Orduna Court, despite never making the $13 million investment into Location Ventures, Davis found. 

Kapoor lawyer’s response

Davis’ declaration and the SEC complaint are based on a “rushed analysis and incomplete information as to the history and workings of” Location Ventures, Urbin and other affiliates, Schwartz said. 

“For example, we believe the SEC will come to acknowledge the true aggregate investment made by Patriots United’s four partners over a number of years prior to and after the “roll-up” of Location Ventures,” Schwartz said. “[The SEC will also acknowledge] the fact that Orduna Court made a sizable profit that can be supported by wires out to relevant partners, completely contradicting the findings in the flawed report.”

Kapoor’s legal team will provide the receiver, the SEC and Judge Altonaga with “a complete and accurate picture…regarding the flow of money between and among the companies, Mr. Kapoor’s compensation and other matters raised,” Schwartz said.

“We are confident the case will be resolved in Mr. Kapoor’s favor,” he added.