As previously reported, the FBI and the U.S. Attorney's office charged Hotton with defrauding the producers of Rebecca "by fabricating the prospect of $4.5 million in financing commitments" on Oct. 15. He was arrested that same day.
Hotton was serving as a middleman between producers and supposed investors of the shuttered musical, and was to get more than $60,000 in fees and commissions for the introduction, according to the unsealed complaint. The sudden loss of the money from investors that Hotton allegedly promised resulted in the shutdown of the production, resulting in the loss of at least 100 jobs related to the musical.
Hotton is also charged with a second fraudulent scheme in which he tricked a Connecticut-based real estate company into paying him and entities he controlled $750,000 by using some of the same deceptions he employed in the Rebecca scheme, the law charged.
Hotton, 46, of West Islip, NY, is charged with two counts of wire fraud. He faces a maximum term of 20 years in prison on each count. This case is being handled by the Office's Complex Frauds Unit. Assistant U.S. Attorneys Sarah E. McCallum, Edward B. Diskant, and Zachary Feingold are in charge of the prosecution.
Manhattan U.S. Attorney Preet Bharara said, "As described in the criminal complaint, Mark Hotton perpetrated stranger-than-fiction frauds both on and off Broadway. As part of one alleged scheme, Hotton concocted a cast of characters to invest in a major musical — investors who turned out to be deep-pocketed phantoms. To carry out the alleged fraud, Hotton faked lives, faked companies and even staged a fake death, pretending that one imaginary investor had suddenly died from malaria. As also alleged, Hotton enlisted his same cast of invisible men to carry out a real estate scam. Ultimately, Hotton's imagination was no match for the FBI which uncovered, with lightning speed, his alleged financial misdeeds."
FBI Acting Assistant Director-in-Charge Mary Galligan said, "In his alleged scheme to defraud investors, Mark Hotton wrote, directed and starred in the work of fiction he took to Broadway. He even allegedly played the supporting characters — phantom investors who existed only in fictitious emails and Hotton's bogus assertions about them. A convincing portrayal on stage can earn you a Tony. A convincing act that fleeces a production's backers can earn you a prison term."
The following allegations are based on the Complaint unsealed Oct. 15 in Manhattan federal court:
From September 2011 to October 2012, Hotton, a businessman and stockbroker with ties to numerous corporate entities, engaged in two separate schemes involving fictitious individuals and entities that he created in order to defraud his victims — the producers of Rebecca, a musical based on the novel by Daphne du Maurier, and a Connecticut-based real estate company.
The budget for Rebecca was between $12 million and $14 million. In January 2012, the show's producers (the "Producers") realized they were $4 million short of their minimum capitalization goal, and began looking for new ways to raise the money. On Feb. 7, 2012, the Producers' company entered into an agreement with TM Consulting, Inc., a company controlled by Mark Hotton, in order to raise the additional funds. Under the agreement, Hotton received a fee of $7,500, and a guarantee of 8 percent of any funds he raised in excess of $250,000, plus tiered percentages of "Rebecca's net profits."
Over the course of the next few months, Hotton led the Producers to believe that he had secured $4.5 million from four overseas investors: "Paul Abrams," of Hawthorne, East Victoria; "Roger Thomas," of St. Peter Port, Guernsey; "Julian Spencer," of Crocker Hill, Chichester, Sussex; and "Walter Timmons," of London, United Kingdom (the "Hotton Investors"). Hotton provided the Producers with purported email contact information for the four men and gave them investment agreements the Hotton Investors had purportedly signed. The Producers also received emails that supposedly came from the Hotton Investors.
Under the terms of the agreement between Hotton and the Producers, they paid him over $15,000 in fees and commissions between March and June 2012. In April 2012, Hotton also demanded and was paid an additional $18,000 "advance"” against his 8 percent commission, claiming that he needed the money to cover the costs of a purported safari he had taken with "Paul Abrams,"” and Abrams' eldest son.
The investigation, which began in late September 2012, quickly revealed that Hotton had concocted an elaborate fraud and that the Hotton Investors did not in fact exist. For example, the purported Hotton Investors' email addresses were controlled by Hotton, and some of the IP addresses used to access their email accounts traced back to a location in Manhattan where Hotton did business. The businesses associated with some of the email addresses for the Hotton Investors also have websites, the domain names of which were registered to Hotton and which he apparently created shortly before and during the fraud. The investigation revealed that Hotton used the email addresses to fabricate correspondence between himself and the Hotton Investors, which he then forwarded to the Producers. In some instances, he used the email addresses to communicate directly with the Producers.
When the Producers began pressing for the Hotton Investors to wire the money they had promised to send by July 31, 2012, Hotton orchestrated the false illness, hospitalization, and untimely "death" of one of the main Hotton Investors, "Paul Abrams." Hotton then fabricated correspondence with a man named "Wexler," who had purportedly been named the executor of the estate of "Paul Abrams," and with whom he claimed to be meeting in England in August 2012 in an effort to ensure that the contribution to Rebecca was still made. However, travel records indicate that Hotton has not left the United States since April 2012. Further, the email address used by "Wexler" is associated with a domain name that was set up and registered to Hotton.
As it became increasingly apparent that the commitments of the Hotton Investors would fall through, Hotton then purported to try to broker a $1.1 million loan for the Producers, even offering up his own real estate and brokerage account as collateral for the loan. But there was no real loan or lender. Rather, Hotton had created a second set of apparently fictional individuals and entities. He created the domain name of the title company he said could assist the Producers in obtaining the loan; invented the business, SPS Equity, that was purportedly making the loan; manufactured email correspondence with individuals, including "Gus" and "Robert Phillips" who purportedly worked for the lender; and invented a company that he said was a "commercial lending affiliate" of the bank that would facilitate his phony offer to put up collateral for the loan. Hotton used this part of the scheme to lure the Producers into paying him and entities he controlled in excess of $35,000. This included $10,000 paid to him personally, as half of a fee for helping to broker the loan, and $23,000 paid to a bank account for the "lender," but which was really controlled by Hotton's sister and administrative assistant.