The current tenant of the Queen Mary and the owners of a recent operator have been accused of seriously mismanaging the historic vessel, with the former facing allegations that it distorted its finances in Long Beach and the latter facing allegations that they fraudulently requested and used the 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 documents related to a corporate bankruptcy case involving the parent company of the Queen Mary tenant.
The tenant, Urban Commons Queensway LLC, did not respond to a request for comment. Taylor Woods, who was among the owners accused of fraud in court records this week, denied any wrongdoing in a statement on Wednesday, May 26 and said his company remains committed to the ship.
“We will continue to work with the City of Long Beach to keep the city and the community happy,” he said, “about our stewardship related to this majestic ship.
The Queen Mary has been an iconic tourist attraction for Long Beach for decades, owning the historic ship. But it has also degraded over the years, with a myriad of repairs estimated at hundreds of millions of dollars needed to keep it safe and operational.
But the current tenant and a recent operator have been criticized for the way they have handled the ship.
In this week’s city audit, Long Beach targeted tenant Urban Commons Queensway, which previously sublet the ship to EHT QMLB, LLC, a subsidiary of Woods and Howard Wu’s Urban Commons. Although the tenant and parent company of EHT QMLB have similar names and have recently shared directors, they are two separate companies.
The tenant’s parent company, EHT US1, Inc., has declared bankruptcy. And in a recent file related to this case, Urban Commons Queensway accused Woods and his business partner of fraud.
Taken together, the complex web of similarly named but distinct companies and subsidiaries, along with the triangular accusations, underscore both the enigmatic world of business and bankruptcy – and the lingering confusion over Queen Mary’s future. .
The audit report, which was part of an investigation into Queen Mary’s finances that City Auditor Laura Doud launched in late 2019, was released on Wednesday, May 26. The investigation found that Urban Commons Queensway, LLC, the lessee of the ship, “misrepresented financial information and breached its obligations under the lease,” according to a statement from Doud.
As part of the company’s lease with Long Beach, Urban Commons Queensway, LLC agreed to complete urgent repair work on the ship; Long Beach provided $ 23 million for the cause, while the company sought to find additional funding.
A 2015 marine survey, 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 the progress Urban Commons Queensway has made in this area. More recently, an April inspection found there were over $ 23 million in “immediate repair needs”.
“Although some repairs have been carried out over the past 5 years, the majority of urgent repair needs have not been met,” the inspection report states. The design group that inspected the vessel, the inspection report said, “confirmed that urgent repairs are still needed to keep the vessel viable for the next two years.”
And Urban Commons Queensway, according to the city’s audit, provided Long Beach with invoices incorrectly stating that the company paid suppliers; Urban Commons Queensway and some vendors, the audit added, did not provide sufficient information to prove that these vendors were paid when or as much as the tenant claimed.
The results, said Doud, provide “clear evidence that Urban Commons (Queensway) intentionally and explicitly distorted the truth in the city.
“This false statement of truth and the reluctance of Urban Commons (Queensway) to provide basic and required financial records is very disturbing,” she added, “and we will continue to pursue this investigation.”
Woods, who was both a representative of Urban Commons Queensway during the period under review and the owner of the company’s sub-tenant managing the ship, said the delay in payment was due to the nature of the work.
“The scope of work evolves as work is done due to discoveries along the way, resulting in changes to contracts and payments,” he said. “This creates a schedule differential for payments due to the changing scope of work during the construction process.”
When it comes to repair work, Woods said, his company and the city worked together to make decisions and ensure their priorities were aligned. The initial $ 23 million advance, Woods said, was used for its intended purpose.
“Urban Commons has spent a considerable amount of money out of pocket, beyond the $ 23 million of the City’s initial advance,” he added, “to complement the work in progress and improve the condition of the queen ”.
The audit report, however, was released two days after Urban Commons Queensway accused Woods, along with his business partner Howard Wu and their company EHT Asset Management, of court fraud. (Wu did not respond to a request for comment, but Woods said his statement could be attributed to the two businessmen.)
The charges – in a separate lawsuit that is part of the overall bankruptcy case of the parent company of Urban Commons Queensway – stem from applications for loans from the federal government’s paycheck protection program last year. The U.S. Small Business Administration launched the Paycheque Protection Program, or PPP, to encourage businesses to keep their employees on their payrolls during the coronavirus pandemic, although it is limited to 500 companies. or fewer employees in one location.
Woods, according to Monday’s court file, applied for a loan on behalf of Urban Commons Queensway, even though he did not have the 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, according to the court record, also 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. This is because the two entities combined had more than 500 workers, but separately each company would be below the 500 employee threshold.
Woods, however, denied this qualification and said the separation of the loans was an “unexpected mistake”.
“None of the parties involved ever intended to do anything improper,” he said in his statement. “As soon as this was discovered, we informed the SBA of the reallocation of this loan, and we are working together appropriately to merge the two Queen Mary SBA loans together, as was the intention and would have been handled. from the beginning.”
The court document, however, said Woods’ actions and communications at the time showed that the requests for two loans – including for a company he knew he did not represent – were intentional.
In a May 14, 2020 text message cited by the court, for example, Woods said: “[l]moving and [all the proceeds] at EHT [Asset] main account as soon as possible. “
He then signed for the Urban Commons Queensway loan on May 18, 2020, according to the court record, and received the $ 2.4 million on behalf of that company three days later; on the same day, the deposit says, Woods transferred the funds to EHT Asset Management.
The alleged fraud occurred when Urban Commons was in dire financial straits, the filing said. 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 subsidiaries of Urban Commons, according to the court document, Woods and Wu controlled at least $ 17.5 million in PPP loans; by June 5, however, companies had spent all but $ 2.3 million.
Woods acknowledged “some confusion” about how the money was used, but denied any fraud.
“The products received at that time have been combined with other funds from the parent company and payments made from these may create some confusion,” he said, “but in no way there was no fraudulent intent towards a party. “
The bankruptcy case
This week’s allegations come as the bankruptcy case of Urban Commons Queensway parent company EHT US1, Inc. unfolds with little clarity on the future of Queen Mary’s lease. Although Long Beach owns the vessel, it is possible – although still undetermined – that the vessel’s management contract will be auctioned off in court.
At this point, Urban Commons Queensway has not yet indicated whether it wishes to keep the lease of the vessel. The cabinet asked for an extension to make this decision until August 16; a judge is due to assess this request at a hearing on June 8.
If Urban Commons Queensway retains the lease, the company will offer a potential timeline for a contract auction. Otherwise, the Queen Mary’s operations would return fully to the city.
All of this, however, is conditional on the approval of a judge.
Long Beach, meanwhile, said in a statement Wednesday that his commitment to the ship remains strong.
“Although the current operator has failed to meet its obligations and is now facing bankruptcy,” the statement read, “the City is working diligently to hold current and future operators accountable for the repairs necessary to keep the Queen safe. Mary. “
Part of that responsibility, it seems, may be fighting for the ship in court.
“The city manager will work closely with the city auditor to assert his rights under the lease to review financial information, assess potential violations of the law and file a formal complaint with law enforcement. order, ”the statement continued,“ if the criminal activity is confirmed. . “