July 10, 2010: WHAT’S ON THE MENU THIS WEEK?
CONSOLIDATED RESORTS BANKRUPTCY UPDATE: Making this short and sweet, the Consolidated Resorts bankruptcy is winding down and Artie Spector’s ASNY Company has been confirmed as the stalking horse bidder for the assets. Officially: “The Trustee and The ASNY Company, LLC (read Arthur Spector), a Delaware limited liability company have entered into an Asset Purchase Agreement, dated as of May 13, 2010, which, together with certain ancillary agreements, contemplates a set of related transactions for the sale of sale of substantially all of the Debtors’ tangible and intangible assets, including the Assumed Contracts.”
The next hearing, to consider any objections relating to the Assumed Contracts, will be held on July 20, 2010.
Meanwhile, the Trustee has been authorized to “continue limited operation of the Debtors’ businesses as set forth in the Trustee’s previously filed motion, and as renewed by oral motion, including for the purpose of servicing and collecting the Debtors’ notes receivable, identifying assets of the estates and preparing them for orderly liquidation, and otherwise generally winding down the vast business affairs of the Debtors.” The authorization is good at least until Sept. 15, 2010, and may be further continued by the Court on oral motion made in open court by the Trustee from time to time without further written notice.
Stay tuned… (Sept. 2010: See final update here)
THE SONG HAS ENDED BUT THE MELODY LINGERS ON: Speaking of banruptcies, it’s been several years since the Epic Resorts bankruptcy wound up. Last call was announced, the lights were dimmed, the band left the stage, the doors were locked, the party was over. Next!
Yet just this week two separate legal cases associated with that bankruptcy saga hit the news. I’ll start with the juicy one, which involves the now defunct USA Capital, a ponzi scheme, Wells Fargo and more. It’s kind of long and kind of complicated, so get a cup of coffee and settle in.
USA Capital was a private hard-money lending service run by Tom Hantges, Joe Milanowski and Paul Hamilton. The company solicited money from investors and used the money to make short-term, or trust deed, loans that were secured by real estate.
Some investors bought fractional shares of individual loans, but others invested through two mortgage loan funds managed by USA Capital. Subsequent investigation revealed that many of the loans were in default, and that the company had been paying investors with money from other loans. The three owners of USA Capital were accused of diverting investor money from the Diversified Trust Deed Fund to cover operating losses at the Marquis Villas Hotel, real estate ventures and a technology company that Hantges and Milanowski owned. That’s the Ponzi scheme part.
On April 13, 2006 the company surprised over 6,000 investors when it declared bankruptcy. At the time of insolvency the company was managing $962 million in investor assets, making it the biggest bankruptcy case in the history of Nevada.
The three men also owned USA Investment Partners, which developed real estate and borrowed from USA Capital.
USA Investment Partners owned Tree Moss Partners (forced into Chapter 7 bankruptcy in 2007), which owed the USA Capital Diversified Trust Deed Fund, one of two USA Capital funds, $22 million. The fund was the only investor in the Tree Moss loan.
Tree Moss Partners, in turn, owned 63 units in the former Epic Resorts’ Palm Springs Marquis Villas, and in March 2004 purchased the Palm Springs Marquis Hotel next door. USA Capital/DTDF/Tree Moss gained ownership of the timeshare villas due to Epic Resorts Palm Springs borrowing $11.5 million from USA Capital, granting in return a security interest in substantially all the assets, including the Master Lease and timeshares connected to the Palm Springs resort. And there’s another twisted legal story in all that, but that’s a story for another day.
ANYhow, enter Wells Fargo Bank. A civil trial is ongoing at this time in Las Vegas, wherein Wells Fargo is accused of participating in “massive looting, self-dealing, and related Ponzi scheme” at USA Capital. The allegations stem from the handling of 30 bank accounts that USA Capital maintained at Wells Fargo. The lawsuit says, for example, that in 2003 Wells Fargo accepted the transfer of $11 million from Diversified Trust Deed’s Fund’s account at Nevada State Bank in violation of state law.
The lawsuit also says Wells Fargo opened accounts for two shell corporations “for the sole purpose of laundering money” from the investment fund and that over less than a year, Wells Fargo processed $23 million in unusual wire transfers “that were structured like textbook money-laundering transactions”.
Plaintiffs’ attorney Allan Diamond of Houston said the lawsuit seeks more than $60 million in damages against the bank. Wells Fargo, naturally, is vigorously defending itself and denying all allegations of wrongdoing. You can read more about this case in the Las Vegas Review-Journal.
If you are interested in following the very tangled threads surrounding USA Capital et. al and its principals, here are some links for you:
- ACCUSATIONS OF FRAUD, SECURITIES VIOLATIONS: SEC sues ex-USA Capital president
- Epic Resorts Case – Equitable Subordination Attack on Liens to Third Party Which Arguably Violate Indenture
- Judge allows Tree Moss bankruptcy
- February 2008 letter to Diversified investors
The second case relating to Epic is simpler (whew!). It involves a case that made it all the way to the Texas Supreme Court, with accounting company Grant Thornton fighting bond and hedge fund companies Prospect High Income Fund, ML CBO IV (Cayman), Ltd., Pamco Cayman, Ltd., and Pam Capital Funding, L.P. The Court issued its opinion on July 2, 2010.
Here’s the deal: A lawsuit was brought by the above mentioned hedge funds that bought high-yield junk bonds issued by Epic Resorts. After timely paying interest for two years, Epic chose not to make an interest payment after its principal lender (Prudential) withdrew critical financing and Epic needed the money to fund operations. The funds subsequently forced Epic into bankruptcy in 2001. In 2002, the funds sued Grant Thornton, which had issued audit reports on Epic’s financial statements for the periods ending December 31, 1999 and December 31, 2000. The funds alleged that Grant Thornton had misrepresented the status of an escrow account that Epic maintained at U.S. Trust, the trustee under the indenture that defined Epic’s obligations to bondholders.
The court essentially found in favor of Grant Thornton, holding (among other things) that liability could not be premised on Grant Thornton’s “general knowledge that investors might purchase Epic bonds”; and that since most of the funds’ bond purchases occurred after March 2001, when its investment manager learned that Epic had lost its critical financing, the funds “could not have justifiably relied on the audit report as to purchases made after they knew the corporation was at risk of financial ruin.”
All these years later, and the tinny tinkling of a piano is still wafting from the ruins of that bankruptcy…
Are you still with me? Then let’s move on to other things. I promise they’ll be shorter.
ANOTHER ONE BITES THE DUST: RDO is proudly taking some credit for the recent arrest by Spanish police of a person behind fraudulent timeshare resale company Benedetti & Asociados. According to RDO, this company, which operated from offices on the Costa Del Sol, targeted Spanish timeshare owners and RDO has received a number of complaints about its activities this year. The arrest follows a report that RDO’s enforcement team sent to the police in Marbella.
RDO has established that Benedetti and Asociados SA was in fact a company that was dissolved in 1989 and this company was using its name. Timeshare owners were told that a corporate buyer was lined up and that they had to pay an upfront fee of €499. The sales failed to take place and the timeshare owners lost their money.
Members of the public who believe they may have been defrauded by this company should contact RDO’s enforcement team on email@example.com
GETTING BIGGER: South Carolina-based Spinnaker Resorts and Hardin Construction have celebrated the “topping off” of the Royal Floridian’s new south tower in Ormond Beach, FL. Currently about 50% complete, at build-out early next year the $11.1 million 7-story building will add 53 more units, bringing the total to 168 units at the timeshare resort.
Spinnaker also is spending between $5 million and $6 million to renovate the existing north tower, including replacing the balconies on the property, the addition of a spa and a larger kiddie pool.
Pre-sales for the new tower, which originally began in 2006, will restart at the end of July and the beginning of August.
Besides the Royal Floridian, Spinnaker also is developing new resorts in Hilton Head, S.C., and Branson, Mo.
The company developed its first timeshare project in Hilton Head in 1983. It then expanded to Beaver Creek, Colo., in 1989; Branson in 1998; and Ormond Beach in 1999.
THE GRAPEVINE: A little birdie tells me that Hilton Grand Vacations in Las Vegas has been closing 30 deals a day lately. Is that true? And if it is, how does it compare to pre-disaster days? And how does it compare to what other Vegas timeshare companies are doing?
SHE’S BACK! For many years, Karen Phelan’s Preferred Timeshare Resales was a fixture at the Ski Run Center in South Lake Tahoe, CA. Located at the intersection of Highway 50 and Ski Run Boulevard, the old Ski Run Center was ultimately razed, and completely rebuilt in 2008. Now, with a brand new Alpine look and inviting small-town village feel, Preferred Timeshare Resales is once again back in its element in South Lake Tahoe and ready to share their expertise and experience in the Lake Tahoe and Hawaii timeshare resale markets!
Karen’s company is one of the few resale outfits that has never charged upfront fees. It is licensed in multiple states, an Accredited Member of the Better Business Bureau, with an A+ rating, and a record of zero complaints throughout their 11 year relationship with the Better Business Bureau.
PEOPLE: Jack Corteway, founding member of ARDA Hawaii and President/CEO of Royal Aloha Vacation Club, has been recognized by the Honolulu City Council for business excellence and dedication to serving the tourism industry for more than 30 years. He received an honorary certificate from the City Council.
“We are honored to have Jack as our founding member and we salute him for more than three decades of service and dedication to Hawaii’s leading industry,” said ARDA-Hawaii Chair Daniel Dinell, Vice President of Hilton Grand Vacations Club. “He serves as an inspiration to all of us who work in the tourism and timeshare industry and we congratulate him on all of his achievements.”
The Royal Aloha Vacation Club (RAVC) was founded in Hawaii in September 1977, and is one of the oldest and most successful timeshare companies in the U.S. Member-owned and managed, RAVC’s timeshare concept is committed to remaining an affordable multi-resort vacation club. More than 30 years ago, it started with units in Waikiki and now has vacation properties worldwide, including Maui and Kailua-Kona, Hawaii; Otter Rock, Oregon; Lake Tahoe, Nevada; Chandler, Arizona; Branson, Missouri; Acapulco, Mexico; and Nueva Andalucia, Spain. RAVC continues to meet the vacation needs of its members and guests by providing services and attractive, wellmaintained facilities at various resorts. Today, RAVC works to meet the vacation needs and desires of approximately 8,000 members who reside in all 50 states, as well as 23 foreign countries.
IN MEMORIAM: SPM Resorts has reported the sad news that Senior Vice President Bill Armbruster, 63, passed away on June 7 in Myrtle Beach, SC. He was on a business trip when he collapsed, apparently a victim of heart failure or stroke.
A Vietnam veteran and accomplished sailor, Bill was a licensed real estate professional and an accredited Community Association Manager (CAM) in Florida. He was a Registered Resort Professional (RRP) with the American Resorts Development Association (ARDA), as well as a Certified Building Administrator (CBA) with Building Managers International (BMI) and a Registered Apartment Manager (RAM) with the National Association of Home Builders (NAHB). He joined SPM Resorts – a timeshare and resort condominium management company based in Myrtle Beach, SC – in March 2007 to oversee and facilitate new business development ventures.
Bill enjoyed serving his community and was the subcommittee chairman of the Pinellas County Council of Mayors’ Waterway Management. He was a board member of the Clearwater YMCA, president of the Suncoast Chapter of Building Managers International and was commodore and vice commodore of several sailing organizations.
Bill is survived by his loving wife, Joyce, and two children, Lesley and Andrew. Inside the Gate offers our deepest consolations to his family and friends.
DEAD SKUNK IN THE MIDDLE OF THE ROAD AWARD: Wow, there’s no PEEE-UW this week.
What happened? Has the industry suddenly found itself cleansed of sin? Went to confession and everything?
I hardly know what to say…
So I guess I’ll leave you with a video to enjoy (or not). I randomly chose the late great George Carlin, nine minutes on the differences between cats and dogs.
Have a great week!
And that’s it for this week’s Roadkill. See ya next weekend, and keep your eyes on the road… Oh, and if you enjoyed this, tell a friend!
Published every Saturday.
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