Indictment Alleges Two Peoria Businessmen Embezzled Funds, Revenue Related to Pere Marquette Hotel Complex Development | USAO-CDIL

PEORIA, Ill. – A federal grand jury has indicted two Peoria area businessmen who led a redevelopment project to renovate the Pere Marquette Hotel and to add a Marriott Courtyard. Gary E. Matthews, 78, and Monte J. Brannan, 67, are charged with using funds provided by investors, the City of Peoria and others, and hotel revenues to enrich themselves and their other business interests from 2008 to 2018.

According to the indictment, Matthews formed GEM Hospitality LLC in 2008 to own and develop the hotel complex in downtown Peoria. GEM was managed by EM Properties, Ltd., another entity that Matthews owned. Brannan became a co-managing partner of GEM in July 2011 when Matthews sold Brannan 50 percent ownership for $1 million.

In 2008, the City of Peoria and Matthews reached a redevelopment agreement for the hotel project to include renovation of the Pere Marquette and the addition of a Pere Marquette Courtyard Marriott hotel. The Pere Marquette closed for renovation in December 2011 and reopened in June 2013. The Pere Marquette Courtyard opened in July 2014.

Funding and loans for the project, estimated at $92 million, were provided by a fund known as Indure, by the International Brotherhood of Electrical Workers and National Electrical Association Diversified Underwritten Real Estate Fund LLC; local banks; the City of Peoria; CORE Construction Services of Illinois; and, private investors. All the lending agreements, including a side letter amendment with the City of Peoria, which loaned $7 million and provided a $29 million grant to fund the project, set forth requirements that Matthews and Brannan were not allowed to take fees and revenues of the hotel development except as explicitly provided.

Marriott International managed the Pere Marquette after it opened in mid-2013 and the Courtyard after its opening in 2014. While Marriott managed the hotels, Matthews and Brannan did not have access to the hotels’ revenues. In 2014, Matthews alleged that Marriott had provided poor management and sought to change management to one of his companies. The City of Peoria rejected Matthews’ proposal, but agreed to execute a side letter amendment to loan documents to allow Matthews’ request to retain First Hospitality Group of Rosemont, Ill., to handle hotel management.

Under the side letter amendment, Matthews and Brannan were required to file monthly certificates of compliance with the various provisions, including that there be no payment of fees directly or indirectly to Matthews and Brannan. The indictment alleges that Matthews and Brannan filed only three compliance certificates which were false, and then stopped complying with the requirement to submit the compliance certificates.

Meanwhile, the indictment alleges that under First Hospitality Group management, Matthews and Brannan directed FHG to transfer monthly payments from the hotel accounts to an account they controlled. In defiance of terms of the loans, Matthews and Brannan allegedly used FHG to fraudulently obtain funds for themselves from the revenues of the hotels. At the time, Matthews and Brannan knew that FHG was unable to pay other financial obligations of the hotels, including payments to Marriott and vendors.

Financial statements provided by FHG listed the payments as monthly rent, garage rent, Marriott rewards expenses, and franchise fees. Matthews and Brannan allegedly provided these statements to others involved in the project’s financing knowing that the statements were misleading and concealed the actual diversion of the funds to Matthews and Brannan.

On or about June 30, 2016, Marriott issued a notice of default to Matthews and Brannan because of past due obligations of $1.4 million. Matthews and Brannan did not pay the past due obligations and allegedly continued to divert funds to themselves. When Marriott shut off the reservation system for the hotels, in January 2017, Matthews and Brannan made a payment to keep the reservation system active.

Following Marriott’s notice of default, Indure issued a notice of default on its delinquent loan and in February 2017, Indure filed a foreclosure action.  Following the foreclosure filing, the indictment alleges that Matthews and Brannan and their related businesses named in the foreclosure filing, caused repeated delays in court proceedings, while maintaining access to the hotels’ revenues.

The indictment alleges that even though they defaulted on loans and other obligations, Matthews and Brannan continued to fraudulently transfer hotel revenues, diverting approximately $750,000 to themselves after the notice of foreclosure.

As a result of the scheme, Matthews and Brannan caused FHG to transfer approximately $13.8 million of the hotels’ revenues to the account they controlled and diverted approximately $1.6 million to themselves and their businesses.

Further, the indictment charges Brannan with three counts of concealment of bankruptcy assets after he filed for bankruptcy under Chapter 11 in April 2018. Brannan allegedly concealed a vehicle, $80,000 in cash, and omitted bank accounts, including an account for a startup known as Seduction Boutique, in which he was a shareholder and authorized signer of the account.

The U.S. Postal Inspection Service and the Internal Revenue Service, Criminal Investigation Division, conducted the investigation. The bankruptcy charge resulted from a referral by the U.S. Trustee for Indiana and Central and Southern Illinois (Region 10). Supervisory Assistant U.S. Attorney Darilynn J. Knauss and Assistant U.S. Attorney Douglas F. McMeyer represent the government in the prosecution.

If convicted, the statutory penalty for each count of mail fraud (five counts); money laundering conspiracy (one count), and money laundering (nine counts) is up to 20 years in prison; and, money laundering (three counts) is up to 10 years in prison. Brannan faces a maximum statutory penalty for concealment of bankruptcy assets (three counts) of up to five years in prison.

Members of the public are reminded that an indictment is merely an accusation; each defendant is presumed innocent unless proven guilty.

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Author: Editor
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