Former Days Inn Owners Indicted For Bank Fraud

NEW YORK— Two former owners of the Days Inn hotel chain, Monty Hundley and Stanley Tollman, were indicted April 17 for allegedly cheating banks out of more than $42 million and evading millions of dollars in federal taxes. The two men, former principals of Tollman-Hundley Hotels, were named in a 33-count indictment at a Manhattan federal grand jury. Among charges alleged in the indictment is that Tollman and Hundley hid millions of dollars in assets, including stock, luxury homes and Rolls Royces, so they would not have to repay debt owed to lenders. Defrauded banks include Chemical Bank, which later became part of J.P. Morgan Chase & Co., and National Westminster Bank Plc. They allegedly defrauded the bank creditors into participating in transactions that resulted in the cancellation of as much as 90% of their personal debt. Tollman is expected to plead not guilty, according to his lawyer. Hundleys lawyer had no comment. The indictment alleges the two men, who began a partnership in 1979 and purchased Days Inn chain ten years later, borrowed heavily to accumulate interests in hotels and guaranteed much of the debt in their individual capacities. By the late 1980s, their partnerships and entities owed hundreds of millions of dollars. When the hotel industry was hit with a recession in the early 1990s, Tollman and Hundley renegotiated their debt with creditor banks. While they agreed to surrender some properties, in many cases those assets were insufficient to pay off the mortgages owed to lenders. In these cases, the men signed notes in which they agreed to pay personally remaining debts amounting to over $100 million. At the same time, they were restructuring debt, they put Tollman-Hundley and the Days Inn parent company into bankruptcy. As a result, Hospitality Franchise Systems, now Cendant, agreed to purchase Days Inn. As part of the sale agreement, the men received 1.7 million in HFS stock, which they later sold for more than $100 million. Although the money was sufficient to pay their debt, the indictment alleges the men, along with other defendants, schemed to hide their assets, including the money from the stock sale. Tollman also allegedly did not tell the banks he owned a home in Palm Beach worth more than $4 million, a $3.5 million home in Manhattan on Park Avenue, a $4 million farm in Connecticut and a $2 million London apartment. He also allegedly owned a fleet of luxury cars that included Rolls Royces, Bentleys and an Aston Martin. In addition, Tollman and Hundley allegedly did not disclose their ownership of shares in gaming company Alpha Hospitality Corp. and interests in two Hundley-Tollman companies. The indictment also alleges Hundley and Tollman, with the assistance of the other defendants, falsely represented to the banks that they had found a group of “European investors” willing to buy the debt from the lenders at a steep discount through two companies: Paternoster Holdings and Chelsea Acquisitions Inc. According to the indictment, there were no investors and the two entities were secretly controlled by Tollman and Hundley. The two men are also charged with conspiring to defraud the Internal Revenue Service by hiding millions of dollars made through their schemes. The indictment also names as defendants: Sanford Freedman, who was general counsel to Hundley and Tollman; James Cutler, chief financial officer of companies controlled by Tollman and Hundley; and Howard Zuckerman, vice president for finance at the companies. SOURCE: Reuters