Hathaways lose control of business

Prefabricated homes and RVs are seen on the Hathaway Homes’ lot on Dec. 6. In October a Utah court issued a $3.8 million judgment against Hathaway Homes, All Terrain and Paul Hathaway. That case was brought by Utah lender TAG Lending LLC. John Roark/ jroark@postregister.com

Read more on this subject
Parts one, two and three of an investigative series of articles profiling consumer issues with Hathaway Homes Group, one of the region’s largest dealers of manufactured and modular homes, can be found at postregister.com. An additional article detailing the Idaho Attorney General’s Office’s efforts to permanently put Hathaway Homes Group out of business can be read here.

Paul and Mikki Hathaway have been removed from management of Hathaway Homes Group after a federal bankruptcy judge found they had grossly mismanaged the finances of their company by diverting funds for personal gambling.

The Post Register has, over the past several days, documented extensive consumer complaints, reports of employees being shorted, reports of subcontractors being stiffed and lawsuits alleging intentional fraud against creditors by Hathaway Homes Group and owner Paul Hathaway.

Hathaway Homes Group is one of the region’s largest dealers of manufactured and modular homes and a large RV dealer. In many cases the Post Register reviewed, large down payments were made to Hathaway Homes. But the company is bankrupt.

Where did all the customers’ money go?

In a November hearing where Hathaway Homes requested permission to pay its monthly bills and paychecks, the company’s attorney, Aaron Tolson, chalked up the situation to over-aggressive expansion into North Dakota, Montana, Nevada and Utah. But he claimed the company was on the verge of being highly profitable, except for the large debts it faces.

Extended bankruptcy proceedings will provide the full answer, but court filings and allegations by a federal bankruptcy trustee suggest company funds were gambled away.

On Dec. 11, Acting U.S. Trustee Gail Geiger filed a motion to have a Chapter 11 trustee appointed for several reasons, including that Hathaway Homes Group didn’t disclose its finances in a timely fashion or file a motion asking for more time in which to do so. It also alleged that Paul and Mikki Hathaway had grossly mismanaged company funds.

Geiger noted that in Paul and Mikki Hathaway’s personal Chapter 11 bankruptcy proceedings, they disclosed millions in gambling. They reported in 2017 exactly $3,440,121 in winnings, and exactly $3,440,121 in losses.

Their personal filings contain figures for the prior two years, with precisely offsetting winnings and losses of $3,118,117 for 2016, and $3,733,295 for 2015.

This level of gambling was reported by a couple who disclosed a combined monthly personal income of less than $8,000 and combined personal assets of $1.7 million, against combined personal unsecured debts of $5.8 million, and combined personal secured debts of $1.6 million.

Brent Hill is the Pro Tem of the Idaho Senate and a Rexburg tax accountant. He said gambling losses can be reported on federal taxes to offset winnings, only up to the level of total winnings. If a person has net gambling losses, it’s typical that their reported winnings and losses would match dollar-for-dollar. It also means that the amount of net gambling losses the Hathaways incurred can’t be readily inferred from the bankruptcy filings.

Geiger came to the same conclusion as Hill regarding the equal reported winnings and losses.

“The reasonable inference from these documents is that their gambling losses exceeded their gambling income,” the trustee wrote.

The Hathaways provided the trustee with bank statements for the period of time between Sept. 12 and Oct. 10 that suggest this gambling was financed, in part at least, with their customers’ money.

“These documents indicate that the Hathaways transferred funds from Hathaway Homes Group LLC to pay for their gambling,” Geiger wrote.

Geiger recommended that the case either be converted to a Chapter 7 bankruptcy, which involves the liquidation of all the company’s assets to come up with what monies are available to pay its creditors; dismissed, which would remove all protections from the company from creditors seeking its assets; or to have a trustee appointed to run the company.

The Chapter 11 trustee could take control of the business, keep jobs for what employees she sees fit, and decide whether the company should be reorganized, liquidated or have bankruptcy protections removed, allowing creditors to attempt to collect what they’re owed, according to the filing.

“Given the diversion of funds for gambling, investigation of Hathaway Homes Group LLC’s financial affairs and marshalling assets by a trustee would be in the best interests of the estate and creditors,” Geiger wrote.

On Thursday, Bankruptcy Judge Jim Pappas decided the preponderance of the evidence indicated Paul and Mikki Hathaway had engaged in gross financial mismanagement, and he removed them from control of the company.

“Current management has both engaged in … gross mismanagement of the affairs of the debtor and … it’s in the best interests of all parties in this case that management be replaced by a trustee,” Pappas said in an oral decision.

The Hathaways are out, and a Chapter 11 trustee is now tasked with managing the company and investigating its finances. The Chapter 11 trustee will be a private individual named by the bankruptcy court.

Reporter Bryan Clark can be reached at 208-542-6751.