June 23, 2017
Fraud Friday — Photoshopped Fraudulent Invoices Lead to 30 Months in Jail for Restauranteur
By Bob Coleman
Editor, Fraud Friday
In my restaurant financing webinar Wednesday I encouraged lenders to shy away from the “casual dining” vertical.
Casual dining restaurants, defined as offering table service at moderate prices, have been hit hard with decreasing sales and increasing food and labor costs. A slew are closing locations including 60 Applebee’s restaurants and 80 Buffalo Wild Wings locations — though they will be spun off and sold as franchises.
In the last six weeks, The Cheesecake Factory has lost 25% of its stock value after it announced declining year-over-year sales.
Kenneth Hatzenbeller built a business with five Chili’s restaurants in Montana. But he was ahead of the curve in experiencing cash flow issues in his casual dining restaurants in 2014.
Unfortunately, he resorted to bank fraud as the means to improve his cash flow, actions that resulted in a guilty plea earlier this year.
Wednesday the 65-year old was sentenced to 30 months in prison and 3 years supervised release. He was also ordered to pay over $1 million in restitution to Zions Bank and Yellowstone Bank.
In August of 2014, Hatzenbeller contacted Zions Bank and requested a $500,000 loan to purchase new furniture, fixtures, and equipment for his restaurants. The collateral for the loan was to be the furniture, fixtures, and equipment purchased with the loan proceeds.
On September 2, 2014, Hatzenbeller signed a Disbursement Request and Authorization requesting that $500,000 in loan proceeds be disbursed to Penner Brokerage. That same day, Zions Bank initiated a wire transfer of $494,890 based on invoices listing Penner Brokerage as the vendor for various furniture, fixtures, and equipment.
The funds were never used for furniture, fixtures and equipment and were redirected to other company debts leaving Zions uncollateralized and unsecured.
In September 2015, Hatzenbeller contacted Yellowstone Bank and indicated he was planning to open a Chili’s restaurant in Billings. Hatzenbeller was looking for financing for the project and stated he needed a $600,000 loan in order to purchase equipment and furnishings for the new restaurant.
Hatzenbeller advised he and his partners would also be contributing an unspecified amount of capital to the project, and they would be personal guarantors on the loan. The bank was to have a lien on all fees, fixtures, and equipment as collateral.
Due to Hatzenbeller and his partners’ strong financial statements, Yellowstone Bank did not require invoices prior to making loan disbursements. Nevertheless, a bank vice president asked for invoices to make himself feel comfortable that the loan money was being spent as agreed upon. No problem. Hatzenbeller photoshopped fake invoices and expense receipts to satisfy the bank.
Hatzenbeller filed Chapter 11 one month later.
Hatzenbeller was deposed in the bankruptcy proceeding and admitted he used the Yellowstone Bank loan proceeds to pay expenses unrelated to the Billings Chili’s restaurant. Hatzenbeller said he used the money to pay a food vendor, pay taxes, and meet payroll. When questioned about the September 2014, $490,000 deposit from Zions Bank, Hatzenbeller falsely claimed it was a loan from his daughter and her husband.