BOISE — The books don’t match the bank statements. The records are in “shambles.” Contracts are missing or unsigned. Money that court filings claimed was in the bank isn’t there.
And in the short period between when Hathaway Homes Group lost a $3.8 million lawsuit to a lender it defrauded and when it filed for bankruptcy, its owners, Paul and Mikki Hathaway, took $30,000 of their customers’ money and gambled it away at the Planet Hollywood Resort and Casino in Las Vegas.
Those are among the key revelations of an investigation completed by Chapter 11 Trustee Gary Rainsdon, who was appointed to take over the company after a bankruptcy judge found gross financial mismanagement.
Rainsdon filed earlier this month to convert Hathaway Homes Group’s Chapter 11 bankruptcy, which would attempt to keep the company in operation in order to pay off its creditors, to a Chapter 7 liquidation, where the few remaining assets would be sold off to pay the creditors a portion they are due out of the small amount that remains.
Hathaway Homes Group was one of the region’s largest distributors of manufactured homes, modular homes and RVs, with sales offices in St. Anthony, Idaho Falls and Williston, N.D. But the company is bankrupt. It faces a consumer protection suit from the Attorney General’s Office, lawsuits from former customers who allege they were ripped off, and a $3.8 million judgment for a Utah lender which was defrauded. The Fremont County Sheriff’s Office also appears to be conducting a criminal investigation.
Rainsdon’s findings match closely with the stories 15 former customers and two former employees have told the Post Register in on-the-record interviews. In particular, they confirm the widespread practice of taking large down payments from customers and then failing to perform any work at all, and instead transferring the funds for personal spending and gambling.
Rainsdon wrote that files showed that in some instances where customers made down payments, some in excess of $100,000, Paul Hathaway never ordered a home to be constructed by the factory.
“The result of (Hathaway Homes Group’s) business practices is a wake of individuals in very difficult circumstances and conditions. While those individuals provided (the company) with significant amounts of money toward the purchase of a home, and were waiting for the construction and installation of their homes, no homes were being built,” he said.
Rainsdon noted that many of those targeted had low incomes and had spent a lifetime saving for such a down payment.
“Instead of receiving a home, those customers are stuck in limbo, living, in some cases, in recreation vehicles or with family,” he wrote. “For some individuals, the loss of money they had saved and paid toward their homes has left them with little remaining resources and few housing alternatives.”
That’s legalese for broke and homeless.
Rainsdon also found that Paul Hathaway regularly told customers that delays were due to circumstances beyond his control, when in fact he simply cashed their checks and ordered no home for them. Rainsdon found recent instances in which homes weren’t ordered for six months after receiving a large down payment.
“In other words, for some customers, (Hathaway Homes Group) was telling customers a home was being built for approximately half a year, even though no home was ever being constructed under those contracts,” he wrote
Rainsdon also found that warranty work was often not performed or done in a substandard way. Trade-ins were so poorly documented that Rainsdon can’t tell who they belong to, if they were sold or to whom they were sold. Homes sold under promissory notes have no records of what has been paid so far.
Rainsdon’s report also gives the first glimpse at the scope of the impact stemming from the actions of Hathaway Homes Group and Paul Hathaway. Rainsdon reports that more than 50 former customers have filed official complaints with the Consumer Protection Division of the Idaho Attorney General’s Office. The total losses these and other customers incurred remains unknown, and may never be known in full.
Rainsdon reported that he found it impossible to reconcile the company’s finances. Some transfers can be tracked, he wrote, but many of them appear to have occurred through checks and cash withdrawals from ATMs and bank branches.
“(Rainsdon) is not, at this time, able to determine the source or specific use of many of the funds being processed through (Hathaway Homes Group before the bankruptcy),” a court filing states.
Rainsdon said when he reviewed Quickbooks data from the company, he was unable to reconcile it with bank statements. And Rainsdon reported that some of Hathaway’s bankruptcy disclosures were untruthful. While a filing indicates more than $142,000 in one company bank account, Rainsdon found there was in fact $65 in it on the day Hathaway filed bankruptcy.
Records of transactions with customers were in similar shape. Files of contracts showed many missing and many unsigned. Rainsdon reported that he was unable to determine the state of accounts receivable and that Paul Hathaway claims not to know. Rainsdon earlier sought a contempt ruling against Hathaway for refusing to cooperate in marshalling the company’s assets and demanding payment for doing so, as well as representing to customers that he still ran the company he had been removed from and asking them to transfer money to him.
All this has left Rainsdon unable to determine whether the business was ever viable, and he said for him to attempt to run the business might risk the few remaining assets by investing them in a company that may be simply a “money pit.”
On top of that, Rainsdon wrote that no lender will touch Hathaway Homes any longer, making it impossible for the company to buy new inventory to sell.
In customer files, Rainsdon found most but not all contracts present, though many were unsigned and most were so unspecific that he can’t determine what work the company promised to perform.
TAG Lending, the largest lender to Hathaway Homes Group, has joined the motion to convert to Chapter 7. That company, according to a Utah lawsuit, extended Paul Hathaway and his company $3.8 million in credit secured by property in North Dakota. But Hathaway instead transferred the collateral to a third party and then defaulted on his loans.
A bankruptcy expert said a conversion to Chapter 7, while likely unavoidable due to the near-total lack of assets in the company, if granted will result in a mad scramble over the scraps.
“It’s a classic Chapter 7, where you have a quarter of a pie left and you have 10 people who are supposed to get a piece of the pie,” said Celeste Miller. “All 10 people are fighting over the two pieces of pie that are left.”
Miller is a semi-retired attorney who is an expert on bankruptcy and white collar crime. She has worked in private practice, as a University of Idaho law professor, and in several federal prosecutorial and U.S. Trustee posts.
The total amount of customers’ money that the Hathaways diverted for personal spending and casino gambling remains unknown. Rainsdon’s investigation found that Hathaway Homes Group’s finances were so intimately commingled with those of Paul and Mikki Hathaway that they can’t be separated.
The couple have reported about $10 million in gambling over the last three years, the only years during which reporting occurred. Their net losses are unknown.
Reporter Bryan Clark can be reached at 208-542-6751.