Saturday, May 14, 2011

Chandler resort lender cries fraud

Lender Guaranty Bank and Trust Co. accused the owner of the Crowne Plaza San Marcos Golf Resort of taking hundreds of thousands of dollars desperately needed by the Chandler resort and distributing it to the property's general partner in the year before its bankruptcy petition was filed.

Alleging fraud, mismanagement and conflicts of interest, the bank filed papers asking the court to dismiss the owner's petition for a Chapter 11 bankruptcy reorganization, and to convert it to Chapter 7 liquidation or appoint a trustee under Chapter 11 "for cause."

The resort's owner, Denver-based San Marcos Capital Partners, filed for bankruptcy protection in March. The general partner is San Marcos Resort Investors LLC. A receiver, Rhode Island-based Smiling Hospitality, is overseeing the property.

John Fries, an attorney for the bank, told Judge George Nielsen in U.S. Bankruptcy Court on Tuesday that $416,000 was transferred from the resort to the general partner in the year before the resort's bankruptcy filing.

"It was when the resort was in desperate need of funds," Fries said. "The property was out of cash and in danger of closing. They couldn't make payroll. The bank gave them $1.35 million based on misrepresentation."

Sean O'Brien of Phoenix, an attorney for the resort's owner, said after the hearing, "We categorically dispute those allegations."

The claims were filed right before Tuesday's hearing, he said, and neither he nor his client had had a chance to read them.

In 2004, San Marcos Capital Partners bought the resort with a loan from Guaranty Bank and Trust, which has been modified four times, according to the lender. The resort's owner has been in default since at least May 16, 2010, and the current balance of the loan exceeds $24 million, according to court papers.

In filings and in court, the lender questioned the management of the property and its use of the loan money.

In May 2007, San Marcos Capital Partners received $8 million in financing from the bank and distributed it to the partners but put very little into maintaining, repairing or renovating the resort. Parts of it have fallen into disrepair; its 47 casitas have been closed for years, court filings said.

In the fourth modification of the loan, the bank extended the maturity date to May 16, 2010. There was an agreement that there would be no additional distribution of dividends or cash to any partner.

Those making the agreement were San Marcos Capital Partners; its general partner; managers of the general partnership, Jeff Witt, Joseph Witt and Robert Bigelow; and the resort's general manager, Frank Heavlin. The entire makeup of the general partnership was not immediately clear.

The bank, unaware that the general partner had received funds from the resort, infused $1.35 million into the resort in the nine months before the bankruptcy filing, the bank said. For example, the bank said, in September, San Marcos Capital Partners told the bank that it needed money to meet payroll, and on Sept. 30, the bank wired $117,409.13 for payroll.

"What debtor failed to tell the bank was that two days earlier, on Sept. 28, debtor transferred $180,000 to its general partner. Frank Heavlin, the resort's general manager, initiated the transfers to the general partner," according to a court filing.

Another court hearing was set for June 6. The judge will hear further arguments on various motions, including the petition to dismiss the Chapter 11 request and whether the receiver will continue to control the resort.

by Luci Scott The Arizona Republic May. 11, 2011 12:00 AM

Chandler resort lender cries fraud

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