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Former Queen Mary operators accused of fraud, misrepresentation of finances

The Queen Mary’s current leaseholder and the owners of a recent operator have been accused of grossly mismanaging the historic ship, with the former facing allegations that it misrepresented its finances to Long Beach and the latter facing allegations that they fraudulently applied for and used loan money from the federal government, according to city and bankruptcy court documents.

The allegations were made this week in a city audit report and in court filings related to a corporate bankruptcy case involving the parent company of the Queen Mary’s leaseholder.

The leaseholder, Urban Commons Queensway LLC, did not respond to a request for comment. Taylor Woods, who was among the owners accused of fraud in this week’s court filings, denied any wrongdoing in a Wednesday, May 26, statement and said his firm is still committed to the ship.

“We will continue to work with the City of Long Beach to satisfy the City and the community,” he said, “about our stewardship related to this majestic vessel.”

The Queen Mary has for decades been an iconic tourist attraction in Long Beach, which owns the historic ship. But it has also degraded over the years, with myriad repairs estimated to cost hundreds of millions of dollars needed to keep it safe and operable.

But the current leaseholder and a recent operator have come under fire for how they have managed the ship.

In this week’s city audit, Long Beach took aim at leaseholder Urban Commons Queensway, which previously subleased the ship to EHT QMLB, LLC, a subsidiary of Woods’ and Howard Wu’s Urban Commons. While the leaseholder and EHT QMLB’s parent company have similar names and have recently shared leaders, they are two separate companies.

The leaseholder’s parent company, EHT US1, Inc., has declared bankruptcy. And in a recent filing related to that case, Urban Commons Queensway accused Woods and his business partner of fraud.

Taken together, the complex web of similarly named-but-separate companies and subsidiaries, as well as the triangular accusations, underscore both the enigmatic world of corporations and bankruptcies — and the ongoing confusion over the Queen Mary’s future.

The audit

The audit report, which was part of a probe into the Queen Mary’s finances that City Auditor Laura Doud launched in late 2019, was released Wednesday, May 26. The investigation found that Urban Commons Queensway, LLC, the ship’s leaseholder, “did in fact misrepresent financial information and failed to perform their duties under the lease,” according to a statement from Doud.

Under the firm’s lease with Long Beach, Urban Commons Queensway, LLC agreed to complete urgent repair work on the ship; Long Beach provided $23 million toward the cause, while the firm sought to find additional funding.

A marine survey conducted in 2015, the year before Urban Commons Queensway took over the lease, found that the total cost of ship repairs could range from $235 million to $289 million.

But multiple inspections in recent years have called into question how much progress Urban Commons Queensway has made on that work. Most recently, an April inspection found that there were more than $23 million worth of “immediate repair needs.”

“While a few repairs have been completed in the last 5 years, the majority of the urgent repair needs were not addressed,” the inspection report said. The design group that surveyed the ship, the inspection report said, “confirmed urgent repairs are still needed to keep the vessel viable for the next two years.”

And Urban Commons Queensway, the city audit said, provided invoice documents to Long Beach that inaccurately averred that the firm had paid vendors; Urban Commons Queensway and some vendors, the audit added, did not provide sufficient information to prove that those vendors were paid when or as much as the leaseholder said.

The findings, Doud said, provide “clear proof that Urban Commons (Queensway) intentionally and explicitly misrepresented the truth to the City.

“This misrepresentation of the truth and unwillingness of Urban Commons (Queensway) to provide the basic and required financial records is very troubling,” she added, “and we will continue to pursue this investigation.”

Woods, who was both a representative for Urban Commons Queensway during the time period investigated and the owner of the firm’s sublessee managing the ship, said the time lapse in payments was due to the nature of the work.

“The scope of work evolves as work is being done due to discoveries along the way resulting in amendments to contracts and payments,” he said. “This creates a timing differential for payments due to the evolving scope of work during the construction process.”

Regarding the repair work, Woods said, his company and the city worked together to make decisions and ensure their priorities aligned. The initial $23 million advance, Woods said, was used for its intended purpose.

“Urban Commons has spent a significant amount of money out of pocket, above and beyond the $23M from the initial advance from the City,” he added, “to supplement the work being done and to improve the condition of the Queen.”

The court filings

The audit report, though, was released two days after Urban Commons Queensway accused Woods, along with business partner Howard Wu and their firm EHT Asset Management, of fraud in court. (Wu did not respond to a request for comment, but Woods said his statement could be attributed to both businessmen.)

The accusations — in a separate suit that’s part of the overall bankruptcy case Urban Commons Queensway’s parent company is going through — stem from applications for Paycheck Protection Program loans from the federal government last year. The U.S. Small Business Administration launched the Paycheck Protection Program, or PPP, as an incentive for businesses to keep employees on their payroll during the coronavirus pandemic, though it was limited to companies with 500 or fewer employees in a single location.

Woods, the Monday court filing said, applied for a loan on behalf of Urban Commons Queensway, even though he had no authority to do so.

Woods and Wu were signatories and representatives of Urban Commons Queensway until April 2020, when they stepped down amid the company’s financial difficulties.

Woods, the court filing said, also intentionally filed for two separate PPP loans — one for Urban Commons Queensway and one for EHT QMLB — even though they were both for the Queen Mary. That’s because the two entities combined had more than 500 workers, but separately, each company would be below the 500-employee threshold.

Woods, though, denied that characterization and said the separation of loans was an “unexpected error.”

“There was never any intention to do anything inappropriate by any party involved,” he said in his statement. “As soon as this was discovered, we notified the SBA about reassigning this loan, and we are working together in an appropriate way to merge the two Queen Mary SBA loans together as was the intent and as it would have been treated all along.”

The court document, though, said Woods’ actions and communications at the time showed the applications for two loans — including for a company he knew he didn’t represent — were intentional.

In a May 14, 2020, text message the court filing cited, for example, Woods said, “[l]et’s move [all the proceeds] to EHT [Asset] main account ASAP.”

He then signed for the Urban Commons Queensway loan on May 18, 2020, the court filing said, and received the $2.4 million on behalf of that firm three days later; the same day, the filing said, Woods transferred the funds to EHT Asset Management.

The alleged fraud came as Urban Commons was in dire financial straits, according to the filing. An April 21, 2020, email from Woods and Wu to their employees, for example, emphasized the need to “maximize loan proceeds in any way possible.”

Combined with loans received by other Urban Commons subsidiaries, the court document said, Woods and Wu controlled at least $17.5 million in PPP loans; by June 5, though, the firms had spent all but $2.3 million of it.

Woods acknowledged “some confusion” about how the money was used, but denied any fraud.

“The proceeds that were received at that time were combined with other parent company funds and payments made therefrom may create some confusion,” he said, “but in no way was there any fraudulent intention toward any party.”

The bankruptcy case

This week’s allegations come as the bankruptcy case of Urban Commons Queensway’s parent company, EHT US1, Inc., proceeds with little clarity on the future of the Queen Mary’s lease. While Long Beach owns the ship, it’s possible — though still undetermined — the contract to manage the vessel will be auctioned off in court.

At this point, Urban Commons Queensway has yet to state whether it wants to keep the ship’s lease. The firm has asked for an extension to make that decision until Aug. 16; a judge is set to weigh that request at a June 8 hearing.

If Urban Commons Queensway does keep the lease, the firm would offer a potential timeline for an auction of the contract. If it doesn’t, the operations of the Queen Mary would fully return to the city.

All of that, though, is conditional upon a judge’s approval.

Long Beach, meanwhile, said in a Wednesday statement that its commitment to the vessel is still strong.

“Although the current operator failed to meet its obligations and is now facing bankruptcy,” the statement said, “the City is working diligently to hold current and future operators accountable for repairs needed to keep the Queen Mary safe.”

Part of that accountability, it seems, may be fighting for the ship in court.

“The City Manager will work closely with the City Auditor to pursue its rights under the Lease to review financial information, assess potential violations of law, and to file a formal complaint with law enforcement,” the statement continued, “if criminal activity is confirmed.”

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Source: Orange County Register

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