Report: Hotel owners cheated state

Review finds $2 million was improperly billed at Springfield facility

By Doug Finke

Gatehouse News Service

State Journal-Register, Springfield, IL

Published Monday, May 19, 2008

SPRINGFIELD - The politically connected previous owners of the President Lincoln Hotel & Conference Center improperly billed at least $2 million to the hotel, money that should have gone to pay off the hotel's state debt, an independent review of its financial records shows.

The owners of the downtown hotel, formerly called the Renaissance Springfield, billed the hotel for legal expenses, skimmed profits from a catering deal and charged the hotel for their personal tax preparation, the report alleges.

The review also found that lobbyist registration fees, caramel apples and Christmas gifts for the Illinois Asphalt Pavement Association were billed to the hotel.

The association's executive vice president is Springfield Republican insider William Cellini, who also was a principal investor in the hotel.

Information from the review is contained in a report being released today by state Treasurer Alexi Giannoulias, who said he has forwarded a copy of the report and other evidence to the FBI and Illinois Attorney General Lisa Madigan.

"The evidence uncovered in the report suggests political insiders cooked the hotel's books and diverted millions of dollars so they didn't have to make good on their state-backed loan," Giannoulias said. "It appears there was a scheme to divert money from the state of Illinois based on this report.

"My guess is this is just the tip of the iceberg," he said.

Giannoulias stopped short of saying criminal activity was involved.

"That's up to the authorities to decide," he said.

Giannoulias, a Democrat serving his first term as treasurer, ordered a review of the hotel's financial records after the state started foreclosure proceedings in 2007. Under a 1990 restructuring of the hotel's state-backed loan, the owners had to make payments only when the hotel showed a profit. At the time the state took over operations of the hotel last year, only two payments had been made in 10 years and none since 2002.

"This appears to be a sophisticated scheme to defraud the state of Illinois," Giannoulias said.

The state hired the accounting firm of Blackman Kallick to conduct the review. Among its findings:

- From 1992 until 2006, the hotel owners used hotel profits to pay their legal fees in three separate lawsuits involving the hotel. One of those was a lawsuit in which the owners wanted the state to settle the loan for pennies on the dollar because the hotel couldn't pay the full debt. The review said the fees were improperly billed to the hotel because they had nothing to do with its operation. Cost: $722,000.

- The hotel had an exclusive catering deal with the Springfield Metropolitan Exposition and Auditorium Authority to provide meals at the Prairie Capital Convention Center. Although the hotel paid all of the expenses from the catering contract, it got only 20 percent of the profit. The other 80 percent went to the parent corporation of the hotel under an arrangement imposed by the corporation in 1996. The report concluded this split was not reasonable because the corporation did none of the catering work. Cost: $475,000.

- The hotel was allowed to set aside funds to pay property taxes, insurance premiums and other limited expenses. The review found that, from 1998 to 2006, money was deducted from the hotel's books twice, once when the money was set aside and again when it was paid out in expenses. Cost: $508,000.

- The hotel owners used hotel funds to have their personal tax statements prepared from 1992 to 2006, the report determined. They also billed the hotel for reports analyzing tax implications for the owners stemming from hotel transactions. The report also found improper "overhead" expenses were paid to the Illinois Asphalt Pavement Association, to New Frontier Management (a company co-founded by Cellini) and to an employee of New Frontier who was also an official with the hotel corporation. Cost: $247,000.

- The Asphalt Pavement Association billed the hotel for $2,258 in Christmas gifts, $644 in caramel apple gifts, $150 in lobbyist-registration fees and $1,800 in other undisclosed expenses.

A woman answering the phone at the Asphalt Pavement Association on Friday said Cellini was in Dubai visiting his daughter. An attorney who represented the hotel during the state's foreclosure proceedings could not be reached for comment.

Giannoulias said he thinks there is more information to be uncovered, but he will leave that up to law enforcement authorities.

"We had limited access to this information. We don't have the power to subpoena or investigate," Giannoulias said.

A court-appointed receiver took over operations of the hotel in March 2007. Since then, the hotel has shown a net profit of $1.2 million, Giannoulias' office says.