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A New York attorney was among five men charged Tuesday with bank fraud and income tax evasion as part of a massive scheme involving companies that owned, managed and operated Days Inn Hotels. Southern District U.S. Attorney James B. Comey said Wednesday that Sanford Freeman, general counsel for several related Days Inn companies, along with an accountant and a financial officer, helped Monty D. Hundley and Stanley S. Tollman defraud Chemical Bank and several other lenders of $42 million. The attorney for Freedman, who is charged with bank fraud, tax evasion, perjury and making false statements to government agents, denied the charges Wednesday. “Mr. Freedman is not guilty,” said defense attorney Audrey Strauss of New York-based Fried, Frank, Harris, Shriver & Jacobson. “He intends to fight these charges.” The indictment charges that the scheme was launched in the 1990s, when Hundley and Tollman devised a plan to avoid paying the banks the hundreds of millions of dollars in debts they accumulated during the rapid growth of their companies. In a statement released Wednesday, Comey said Hundley and Tollman created the impression they were unable to pay their debts by allegedly defaulting on payments, submitting false financial statements, transferring assets to family members and, most importantly, failing to tell the banks that their financial situation had dramatically improved when they received $100 million in stock for their sale of Days Inn of America Corp. to another company. Tollman allegedly failed to disclose to the banks his million-dollar residences in Manhattan, Palm Beach, Connecticut and England, his fleet of luxury cars and his ownership in three different companies, the indictment charges, and Hundley made similar nondisclosures. Freedman’s alleged role in the scam was in tandem with accountant James Cutler and financial officer Howard Zukerman. The three purportedly helped Hundley and Tollman convince the banks that they had found a group of “European Investors” to purchase the debt for as little as 10 percent of face value. ‘STRAW COMPANIES’ Two companies controlled by Hundley and Tollman, Paternoster Holdings and Chelsea Acquisitions Inc., were the entities established to handle the phony debt repurchase for the phantom European investors. Their ownership of these “straw companies,” Comey charged, was concealed from the banks through several measures employed by Freedman and the other four, including the use of New York businessman James Cohen to pose as a representative of the European investors. “In truth, Hundley and Tollman, directly and through Freedman, Cutler, and Zukerman, dictated to Cohen, their co-conspirator according to the indictment, his negotiating position,” Comey said. To disguise their direct involvement in Paternoster and Chelsea Acquisition, Freedman allegedly helped appoint business associates, and family members of Tollman’s who did not share his last name, as officers and directors of the two straw companies. On some matters, Comey charged, Freedman “allegedly arranged for attorneys to ‘represent’ the straw entities,” in the debt purchase transactions. But those attorneys, Comey said, “conducted little or no business analysis of the debt-purchase transactions, and acted simply as conduits for the transfers of the funds … .” Freedman, 65, is also accused of helping Hundley and Tollman shield their activities from both their outside accountants and the Internal Revenue Service, enabling the pair to avoid paying millions in taxes. Along with the aid of Cutler and Zukerman, the indictment charges, Freedman helped hide the fact that Tollman and Hundley “used their own funds and their straw companies to purchase their own debt from the various banks, which effectively cancelled that debt because the straw companies took no steps to enforce the debt.” Moreover, the indictment alleged, Freedman was made an officer and director of one of the companies and failed to file an income tax return for that company, made false statements to IRS agents investigating the case, and “committed perjury at a bankruptcy-related deposition where he was asked questions about one of the straw companies that Hundley and Tollman employed.” No date has been set yet for the arraignment of Freedman, who lives in the Riverdale section of the Bronx in New York.

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