Risk Management

Former Days Inn CFO Could Get More Days in Prison

An appeals court reverses a one-year sentence for a hotel chain's former finance chief convicted of bank and mail fraud.
Sarah JohnsonMarch 18, 2008

Three years after receiving a one-year prison sentence for bank and mail fraud, former Days Inn CFO James Cutler could serve more time.

An appeals court sided with U.S. prosecutors in its decision on Monday to reverse Cutler’s 2005 sentencing. Along with the one year in prison, the U.S. District Court for the Southern District of New York had ordered Cutler to serve five years on probation, pay $29.8 million in restitution, and forfeit $1.4 million.

The lower court had justified giving Cutler a lighter sentence than recommended under federal sentencing guidelines because of what it considered his relatively minor role in a $100 million bank scheme involving his former bosses and how a long prison term would affect his ability to pay child support to his ex-wife and three kids. He could have been sentenced to serve six to eight years.

William Schwartz of Cooley Godward Kronish LLP, which represents Cutler, told CFO.com he has no comment on Monday’s ruling. He said Cutler has served his prison time.

In her opinion remanding Cutler’s case to the lower court for resentencing, U.S. Circuit Judge Amalya Kearse conceded that Cutler was not the main player in the fraud. But in his role as CFO he was responsible for the actions that occurred under his watch: “Although Cutler may not have been involved in the everyday communications with the banks that the co-conspirators were attempting to defraud, his position as chief financial officer made him a natural person for the banks to contact for information when they could not get information from [other executives].”

Indeed, she added, “had Cutler not participated in the frauds but given the banks true information as to the personal assets of [his company’s owners], the frauds would not have succeeded.”

Three years ago, Cutler was convicted on several charges, including conspiracy to commit bank fraud, tax fraud conspiracy, making false statements, and tax evasion while he was the CFO for Tollman-Hundley Hotels, which owned several hotels chains, including Days Inn. One of Cutler’s employers, Monty Hundley, along with the hotel company’s vice president of finance and its general counsel, were convicted on similar charges. Cutler’s other boss, Stanley Tollman, left the United States before his arraignment and is considered a fugitive.

In the early 1990s, Tollman-Hundley was in difficult financial straits, the appeals court noted, and was unable to meet its loan agreements totaling $100 million. At the same time, Tollman and Hundley were negotiating to start up a riverboat casino business. The two men and their top executives got in trouble for presenting two different views of their financial standing: creditors were told one story, and investors of the casino project were told another.

As for Cutler’s role, prosecutors said he misrepresented Tollman’s and Hundley’s assets by convincing creditors they should settle for less than they what they were owed in 1993. They said Cutler sent to a creditor bank three-year-old financial statements that reflected that Tollman and Hundley had assets totaling more than $200,000, claiming they showed the most recent figures available.

However, he had sent more recent statements to the Mississippi Gaming Commission for the casino business, showing the men’s net worth as equaling more than $27 million.

Cutler also helped Tollman and Hundley and other executives evade taxes for nearly a decade, according to the appeals court. Several salary payments went unreported to the IRS, including those paid through the executives’ car payments and insurance premiums. Cutler himself had Tollman-Hundley pay some of his salary through rent payments made directly to this landlord.

During the trial, Cutler’s attorneys downplayed his role in the company’s schemes and were able to convince the lower court judge that he should be given a lenient sentence. Still, the judge determined that “some jail time is required to provide adequate deterrence to this type of criminal conduct.”

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