Embassy Suites Investors File Suit Claiming Fraud

About 1,400 people who invested $98 million in limited partnerships to build Embassy Suites hotels in Santa Ana and five other California cities filed suit Thursday in Los Angeles, contending that they were victims of a massive fraud scheme.

Four named plaintiffs filed the suit in U.S. District Court on behalf of themselves and the other investors across the country who participated in a plan to build hotels in Santa Ana, El Segundo, Downey and Oxnard, as well as Napa and Burlingame in Northern California.

The lawsuit contends that the scheme was masterminded by Robert E. Woolley of Irving, Tex., who it said served as general partner of each of the six hotel limited partnerships. The lawsuit said Woolley and several associates lured about 1,400 investors into the project by distributing memoranda that omitted “crucial” facts.

Also named as defendants are Woolley’s son, Robert E. Woolley Jr., and his construction firm, Rewcon Inc. of Irving, Tex.; Charles M. Sweeney of San Mateo, Calif., and Landmark Suites of America Inc., all general partners of the Napa limited partnership, and Joseph J. Amoroso of Westlake Village, a general partner in the Oxnard development.

None of the defendants could be reached for comment. The suit accuses them of racketeering, fraud, unjust enrichment and violation of U.S. securities laws and California business codes.

The suit said the defendants falsely represented themselves as experts in hotel development, construction and management. Private placement memoranda circulated by the defendants “projected great success” in each of the six developments and promised significant returns on investments, the suit said.

But actual cash distributions to investors--promised to be about $59 million for all six hotels--fell far short, the suit said. Three of the projects generated no return and the three others provided returns of between 3% and 7% of what was promised, the suit said.

Investors contend that the defendants embezzled some of the funds for personal gain. They claim that they were not told that the projected constructions costs for the projects were understated and that cost overruns of up to 69% already existed.

Also allegedly concealed from investors was the fact that the fees to be paid to the defendants were so high that “imposition of the fees would preclude the six limited partnerships from ever achieving economic viability,” the lawsuit said.

Finally, investors said, the defendants inserted and controlled illusory “buyback” provisions in each partnership agreement which gave them the chance to get interest-free financing of large portions of each hotel’s value.

The investors said in the lawsuit that they learned last year that Woolley contracted with one of his wholly owned corporations, Hometel Construction Co. in Arizona, to build the Downey hotel.

On the same day that the general contractor agreed to build it for Hometel for $7.8 million, Hometel contracted with the general partnership to build it for $8.9 million, so Woolley pocketed the $1.1 million difference, the suit said.

Similar “double-contracts” were used to build the other five hotels, the suit said.

The investors seek damages to be proved at trial. They also want a judge to remove the general partners.