Was $100 Million Worth It?

by Ben Goldfarb on July 25, 2005

in General, Tollman-Hundley

Monty Hundley in 1975

Monty Hundley in 1975

I met Monty Hundley (pictured at right) when I working as assistant controller at Loews Paradise Island Hotel and Villas in the Bahamas. Monty was a dynamic young guy, about the same age as I, who was at the time interviewing for the open position of Managing Director. Already a talented resort manager well before age 30, he began his working career as a CPA and later gained significant management experience in Nevada’s gaming resorts. Interviewing well, Monty easily won the managing director job at Paradise Island at the age of 29.

That was back in 1974. Hundley quickly gained the respect and admiration of the resort’s staff, the islanders, and Loews Corporation executives. He was a man on the way up. Some might have considered him brash, flamboyant, and cocksure, but they could never argue with his results. Personally, I enjoyed working with him and for him for two years. Yeah, we had our share of disagreements, including one that impelled him to offer to “take [me] down to the beach and kick [my] ass.” Whatever inspired that was fleeting, but probably justifed in view of my confrontational nature. We got over it. I never lost respect for Monty, his achievements, and his ability. Since last seeing Monty in 1976, I have had no further contact with him; nevertheless, I was certain that Monty would succeed in whatever he undertook—I knew that he would always be on top of the heap.

With that in mind, it was inconceivable to me that Monty’s life would ever turn sour. Accordingly, it was with shocked dismay that I learned of his indictment for bank fraud sometime in 2003. I followed his case as closely as I could from what I could piece together on the Web. Ultimately, I was further saddened to learn that in 2005, Monty was sentenced to eight years in prison for bank fraud and tax evasion. The heap he was on top of was a heap of trouble.

Alas, this is the story of a good life gone bad.

Back in 1974, Monty took over the helm of a resort in decline. The departing managing director had overridingly emphasized cost cutting, resulting in a moribund operation replete with staff morale problems. Hundley turned that all around—quickly, too. At the time, I was too young and naïve to realize what others had quickly recognized—that he was a resort marketing and management genius.

I benefited personally from my association with Monty Hundley. He supported me, he promoted me, he gave me a better salary than the home office in New York wanted me to have, and he taught me a helluva lot about the hotel business and about business in general.

In late 1975 or early 1976, Hundley was promoted to a regional management position in the Loews home office in New York. By that time, I had been promoted to controller (Monty having been instrumental in my promotion) but I was rapidly becoming disenchanted with my future prospects in the wake of Monty’s departure. Both of my supervisors—locally, the new managing director and in New York, the regional controller—were heavy handed, condescending boors who tended to expect lots while giving little.

Besides, I had “island fever.” I had been on “the rock” for almost five years. I was ready to return to the United States. A back spasm laid me up for a few days, giving me the time I needed to think about it. In a rather stupid and immature move, I summarily resigned in April 1976 and left the island shortly thereafter. (It was later divulged to me by people in the know that Monty had campaigned for and had received tacit approval for my transfer to Monte Carlo, but that’s another story completely!)

Not long after I left the Bahamas, I ran into Monty once more, in New York. I haven’t seen him since then.

Through the grapevine, I later learned that Monty had made a lot of money on Resorts International stock shortly before gambling was legalized in Atlantic City, where Resorts either had built or was planning to build gambling resorts. Resorts International was the landlord for Paradise Island, and its genesis in the period following Castro’s takeover in Cuba was rumored to have had ties to organized crime. Back then, it was known as the Mary Carter Paint Company. Later, it became a legitimate enterprise that was ultimately sold to Merv Griffin, who subsequently sold it to Coca Cola. At the Paradise Island complex, Loews had a close relationship with Resorts, and through that relationship, no doubt, Monty became attuned to the potential run-up in the stock.

Later, probably around 1980, I heard that Hundley had purchased a hotel in New York City. That was the last I heard about him and his exploits for over two decades. By 1980, I had changed careers. I was busy getting some formal education in my new field, and I lost interest in the hotel and resort business.

It wasn’t until more than 20 years later that my curiosity drove me to search the Web for information about Monty. Unfortunately, I gleaned the most information about him from a U.S. Department of Justice press release.

Monty and I were like two ships passing in the night. My ship was a slow, rusty freighter, while Monty’s was a luxury cruise on the Titanic. While I was busy becoming a born-again geek, life in the fast lane had sucked Monty into a vortex that would ultimately lead to his downfall.

What caused this dynamic, brilliant hotel executive to go sour? Was it the same sort of greed that brought down Enron and Worldcom? Was he indeed the “mastermind” as the DOJ press release states, or did he succumb to the greedy wishes of his partners? Were the fraudulent schemes pursued out of desperation, or did the partners develop them over time? We might never know the answers to these questions. Speculate about them if you wish after reading my synopsis of the court’s findings.

Hundley formed a partnership with Stanley Tollman, another hotel entrepreneur. Through the 1980s and 1990s, Tollman-Hundley Hotels grew to own one hundred hotels in the United States. Somewhere along the line, Hundley and others became owners of Days Inn of America. The expansion was funded largely by bank loans, many of which were personally guaranteed by Tollman and Hundley. Some of these loans fell into default, resulting in a restructuring of the debt—over $100 million—in the early 1990s. Tollman and Hundley signed deficiency notes that made them personally liable for the loans. Around the same time, they sold Days Inn of America to Hospitality Franchise Systems (HFS), which later became Cendant. As a condition of an agreement related to the sale, HFS issued them more than a million shares of stock between 1993 and 1995, which Hundley and Tollman subsequently sold. At this point, one would think that Hundley and Tollman could have used the proceeds to repay the personally guaranteed loans. Alas, they didn’t. Instead, they concocted a plan to systematically defraud their creditors.

Along with other principals of their company (or companies), Hundley and Tollman devised an elaborate fraud. According to the Department of Justice press release of February 4, 2004, “[Hundley and Tollman] (1) falsely represented to Hundley and Tollman’s creditors that Hundley and Tollman were broke and lacked the means to repay their debts; and (2) duped the creditors into selling those debts, at a steep discount, to purportedly unrelated third parties who, the evidence showed, were in fact sham entities controlled and funded by Hundley and Tollman.”

Hundley and Tollman could have used $100 million derived from the sale of HFS stock to pay off their debts, which would have allowed this story to conclude on a happier note. However, instead, Hundley and Tollman convinced the bankers to whom they owed $100 million that they were broke. The financial statements they employed to make such a convincing case omitted several major assets, including not only the $100 million HFS stock sale proceeds but also Tollman’s multimillion dollar homes in Palm Beach and on Park Avenue in Manhattan, Hundley’s multimillion dollar house in Bedford, New York, and Tollman and Hundley’s interest in various businesses they controlled.

Then, to make a long story short, Hundley and Tollman, along with several others who were involved with the company (and who were also indicted), convinced the banks that they had found a group of “European investors” who were willing to purchase the debt at a deep discount, mere pennies on the dollar. The group of companies turned out to be owned by Hundley and Tollman. Having convinced the banks that they were bankrupt, an intermediary engaged by Hundley and Tollman presented this “offer you can’t refuse” on behalf of the “European investors” to the banks, which was accepted. Hundley and Tollman apparently then used some of the cash obtained in the HFS stock sale to buy the discounted loans through their secretly owned companies.

In addition to the bank fraud just described, Hundley was convicted of several personal tax charges, including tax evasion and filing false returns. The evidence showed that Hundley had filed no tax returns from at least 1974 until the start of the investigation in 1996. Apparently, once he knew he was under investigation, he filed returns for the years 1995 through 1999, but omitted disclosing a secret bank account in the Channel Islands.

In April of 2005, Monty Hundley was sentenced to 96 months in prison for defrauding a dozen creditors out of $100 million and defrauding the IRS out of taxes on more than $29 million of income. Other associates were sentenced as well, but Tollman fled the country and remains a fugitive. Hundley was also ordered to pay $106 million in restitution to the creditors, and $5.4 million to the IRS. A $44 million forfeiture order was entered against him, which allows to government to seize certain assets. Initially, Hundley was ordered to surrender his interest in a multi-million dollar company he controlled through a revocable trust in the name of his son.

I liked Monty, who had a lasting and positive impact on my life. He was a bright young guy with a bright future who would have succeeded in whatever endeavors in which he might have engaged  had he taken the legitimate route. What caused him to take the low road? We will probably never know, unless he uses his prison time to write a book about his rise and fall. Did he deserve this punishment? That is not for me to decide.  He has been tried and convicted. Unless appeals are forthcoming, he is going to jail for a long time. As well, I fear that the investigation, the lengthy trial, and now probably eight years in prison—in all, 17 years of hell, coupled with losing much if not all of his wealth—might conspire to transform this once ferocious tiger into a tired old cat. I hope not. I am pulling for him to maintain his strong spirit; I am betting that even at the age of 68, at which time he will once again be a free man, he will still have the drive and the desire to come out on top.

SN November 4, 2011 at 1:42 am

So Slave,

Not only interesting that you use this as your tag, but that you are cognicent that “they” –and you, consider this your role. When one in your position witnesses the behaviour of this family, how do you reconcile this with your conscious?

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