Creditors charge fraud in USA Springs loan


Unsecured creditors of USA Springs claim that the water bottling company's insiders were involved in "fraudulent transfers" of more than $2.6 million of a $8.4 million loan, and that such "unjust enrichment" helped drive the company into bankruptcy, according to a Friday filing in Bankruptcy Court.The complaint also charges that Francesco Rotondo, the president of the company, and a shareholder, Armand Hyatt, were paid a total of $245,000 around the time of the loan, and that these payouts were "unlawful distributions" The creditors also charge that the lender, Roswell Commercial Mortgage LLC, should have known that the company couldn’t pay back the 13 percent loan because the appraisal used was based on income that USA Springs didn’t have and that the loan was not really secured.The creditors want the insiders to pay back the money, and for Roswell to get in line just like them.The filing is the latest legal twist in the long and winding saga of USA Springs, which has been trying to build a bottling plant for nearly a decade in Nottingham over the objections of tenacious local groups that charge the company wants to suck the area's groundwater dry in order to make a profit by selling bottled water overseas.After a bitter fight, USA Springs obtained its permits, only to file bankruptcy at the end of June 2008, with the plant half finished. After two years in court, the company says it has a buyer, Lower Falls Funding LLC, a company based in Newton, Mass., and incorporated in New York state. The company says it will pay $55 million and leave Rotondo in charge.Lower Falls declined comment on the issue.In the midst of this comes a complaint focusing on the closing of the mortgage in 2007 made by Roswell, a hard money lender based in Atlanta. The loan provided bridge financing until the company was up and running, but 42 percent of the loan went to various "closing transfers" according to the complaint -- $2.6 million for "mortgage and loan payoffs," some $756,000 in points to Roswell and $168,000 as a fee to Roswell's mortgage broker.The complaint names USA Springs and 25 other defendants, including Rotondo, his brother Marco Rotondo, various trusts that own the land, and various shareholders or lenders, some with little, or no documentation of the loan.Many of these insiders also claim that the bankrupt USA Springs owes them money.According to the complaint, Francesco Rotondo, who was receiving $11,000 a month in expenses and salary, wrote himself two checks on Feb. 28, 2007, and March 30, 2007, each for $50,000, that were "not in the ordinary course of business."Francesco Rotondo didn’t receive any money at the closing, but his brother Marco Rotondo got $50,000, though there is no record of his ever lending the company money, according to the complaint. Although Marco Rotondo, like others, signed a receipt saying he was paid in full, the bankruptcy filing says he is still owed $344,000.Armand Hyatt -- an attorney who represented USA Springs until shortly after the bankruptcy and a board member of the company who owns about 13 percent of the company’s stock -- received $214,000 as an attorney for the Nassar Trusts, which also owns stock in the company. In addition, Francesco Rotondo allegedly paid Hyatt another $145,000 three days after the closing. The complaint also challenged the loan itself. There was no formal loan application or process, said the complaint, nor were the borrowers required to submit audited financial statements. And the loan came on top of three other loans, all which went into default months after closing."In each instance, Roswell Commercial either began foreclosure proceedings or took a deed in lieu of foreclosure on each of the four 'loans," the complaint said.Also, according to the complaint, the company failed to ascertain whether the closing transfers were made to insiders, and it relied on an appraisal that concluded that the property was worth $14.7 million, although that number was based on "hypothetical and extraordinary assumptions that refer to the completion of all improvements as designed and planned and that all permits and approvals are now and remain valid."But the bottling facility was "not expected to be operation in the near time" nor did it have any "binding contracts or commitments from customers," the complaint said. -- BOB SANDERS/NEW HAMPSHIRE BUSINESS REVIEW
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