Questions remain over control of Pennichuck-linked firm

The allegation that Pennichuck Corp. awarded more than $1 million worth of landscaping work to the son of the firm’s former CEO may not be accurate.

The former CEO, Maurice Arel, and the company agreed last month to a $390,000 settlement with state and federal securities regulators to resolve an ongoing investigation of various commercial real estate deals made through joint ventures.

While no one disputes that the company – MGM Plus Ground Maintenance Inc. – got the work, Michael Kennedy, a former friend of the Arel family, owned the bankrupt company, not Maurice Arel’s son Matthew. So who controlled what and when is a question the U.S. Bankruptcy Court is trying to answer amid charges of fraud, deception and embezzlement.

According to a consent order issued by the state Bureau of Securities Regulation, Pennichuck’s real estate arm – Southwood Corp. – steered some $850,000 worth of business to MGM. If you throw in the work awarded by companies owned by Southwood partner John Stabile, the total comes out to $1.2 million from 1996 to 2002.

If Maurice Arel’s son controlled the company, that was a clear conflict of interest that was not disclosed to shareholders, one of the reasons for sanctions against him.

But shortly after 2002, Stabile fired MGM, and in June of the following year, MGM filed for Chapter 7 bankruptcy, claiming $638,000 in debts.

Now the bankrupt company’s sole legal purpose is to pay off its creditors, and to do so, it is going after Matthew Arel, who “wrote the checks and ran all business affairs” of the company.

Arel, claims Victor Dahar, bankruptcy trustee for MGM, in a complaint filed with the court in September, forged Kennedy’s signature, transferred assets for his own benefit and sold off assets of the company, pocketing the proceeds. The complaint asks for $1 million.

In one instance, the complaint alleges, Mathew Arel used company assets to build a $500,000 home on 10 acres in Brookline owned by a trust benefiting his wife, Melissa Arel, and controlled by his mother-in-law, Vivian Rowe. Both Rowe and Melissa Arel are named in a separate $500,000 complaint.

Arel also allegedly sold off a building under the name 173 Route 13 LLC and collected more than $17,000. Arel also made off with a laptop computer, a fax machine, a copier, some Skidsteer Tires and a set of diamond earrings. All of this contributed to the company’s debt and the bankruptcy filing, the company claims.

Arel, represented by Nashua attorney Joseph Foster — who also is a Democratic state senator — denies most of the substantial allegations, as do his wife and mother-in-law. Arel specifically denies that he ran all of MGM’s business affairs, and that Kennedy knew what was going on. Any activities that benefited his family were either authorized or paid for, Arel said in answer to the complaint.

While Arel used MGM funds to build his home, he repaid the company by transferring his home to Kennedy’s wife, Patrice. He also noted that most of the money from the sale of the Route 13 building went to Kennedy’s accountant, that his receipt of the diamond earrings was proper and that Kennedy rejected Arel’s plan to turn the company around, and that was the direct cause for the bankruptcy.

Finally, Arel (along with his wife and mother-in-law) wants this matter settled by a jury trial.

Neither Foster nor Dahar would comment on the complaint, and neither Arel or Kennedy could be reached for comment.

About a year ago, Arel told the Business Review that he was MGM’s former “director of operations.”

When he was told of Kennedy’s allegations of fraud he answered, “There were financial issues. People make mistakes, but I can sleep at night knowing I didn’t do anything wrong.”

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