Wei Chen’s move to buy the hotel at the former Fashion Mall in Plantation has hit multiple roadblocks, attorneys said at an emergency hearing Friday.
Chen, the project manager overseeing the $300 million makeover of the shuttered mall, planned to close Monday on the hotel purchase. It operates under the Sheraton brand, and Chen needed approval from Sheraton owner Starwood Hotels & Resorts for the ownership change.
But his plans appeared to be falling apart amid claims that Chen tried to double-cross his partners on the sale.
Tangsgan Ganglu Iron & Steel Co. Ltd., a Chinese conglomerate redeveloping the former mall site as a mixed-use project, sued Chen, accusing him of malfeasance and misappropriation of funds after he was named manager.
Chen filed a countersuit seeking damages and a declaratory judgment supporting his position as manager.
Tangsgan Ganglu alleges Chen tried to cut the company out of the hotel deal by moving to purchase the property on his own.
A report late Thursday from the court-appointed receiver, Berger Singerman partner Charles H. Lichtman, cited “grave concerns” about the hotel deal.
And new information that emerged at Friday’s hearing called by Broward Circuit Judge Jack Tuter suggested Starwood has misgivings. The hotel chain won’t let Chen use the franchise name without additional due diligence, its attorney confirmed.
“At this point, Starwood cannot consent to the transaction in light of the allegations,” said Greenberg Traurig shareholder Jeffrey Allan Hirsch of Fort Lauderdale, who represented Starwood on the teleconference call.
Chen’s financing also might be precarious, and attorneys said he was unlikely to close Monday.
The court appointed Lichtman as a limited receiver Tuesday, giving him a few days to evaluate the proposed deal to purchase the hotel through WCH Hospitality LLC, which Chen formed in May 2013.
Lichtman’s job was to determine whether the WCH purchase was in the best interest of Mapuche LLC, the company Chen and Tangsgan Ganglu would have used to purchase the Sheraton.
Tangsgan Ganglu owns 80 percent of Mapuche, and Chen is a minority owner who managed the company since 2005.
“It appears that Mr. Chen usurped a corporate opportunity, but to be sure, this issue should be investigated thoroughly,” Lichtman wrote in a report filed late Thursday.
But Chen insists he pursued the acquisition only after his affiliates passed it up. His lawyer, Benjamin Olive of Hackleman Olive & Judd in Fort Lauderdale, and Mapuche’s attorney, Daniel DeSouza of Becker & Poliakoff of Miami, did not respond to requests for comment by deadline.
Tangsgan Ganglu and its chairman, Zhen Zeng Du, said they invested $160 million in Mapuche for the mall redevelopment. And even though Chen put none of his own money into Mapuche, he used $2.6 million from the company’s account as a deposit on the $16.93 million hotel deal, court records show.
“Given these facts, the receiver believes that Mapuche itself now holds a fraudulent transfer claim against WCH and probably Mr. Chen to recover the $2,600,000,” Lichtman wrote.
Tangsgan Ganglu’s attorneys say Chen has been raising funds to finance the deal. They cited 24 wire transfers totaling $3.4 million to a Citibank account belonging to Chen and his wife, Linda Huang. The transfers appear to be loans that mature in 18 months. Chen used that money to help fund a $5 million cash deposit held in escrow for the hotel deal.
“The more I learned about the transaction, the more uncomfortable I became with it,” Lichtman said at Friday’s hearing. “I have no hard evidence about what Mr. Chen is doing right now. I have a grave concern that he’s out there soliciting funds for an improper purpose.”
Company attorney Rodriguez-Taseff worried about investor recruitment.
“We are very concerned that unknowing investors will continue to be involved in this transaction, further complicating this situation,” she said.
The judge ordered Chen to provide potential investors with a copy of the receiver’s report and a Starwood email telling Chen of its plans to extend due diligence.
Tuter refused to rule on any other issues until next week.
“I don’t know how the transaction closes if Starwood is not at the table,” he said.