Former Owners of Pasadena Sheraton Accused of Fraud

A company forced to pay the City nearly $500,000 in back hotel taxes is in deep waters again.

Urban Commons, the former operators of the Queen Mary, faces federal fraud charges today, after regulators alleged they bilked investors out of millions of dollars through schemes tied to their ownership of more than a dozen hotels, including the iconic ship in Long Beach.

Taylor Woods and Howard Wu were charged Tuesday by the Securities and Exchange Commission with two counts of securities fraud. The complaint was filed in federal court in downtown Los Angeles.

In 2022, the company that once owned the Pasadena Sheraton paid the City a $497,000 settlement after it was determined Urban Commons took hundreds of thousands of dollars in transient occupancy tax and tourism business improvement district assessment monies without turning the monies over to the city on a monthly basis, as required by law.

Transient Occupancy Tax, or TOT, is paid by everyone who stays at a local hotel. Hotel operators are compelled by city law to collect a TOT and Tourism Business Improvement District (TBID) assessments from guests, and those funds “shall be held in trust for the account of the city until payment is made to the tax administrator.”

TOT funds are scheduled to be turned over on or before the 20th day of the month. The money goes into the city’s general fund.

But according to the lawsuit, “all or some of the monies owed under the TOT and TBID ordinances were used in the purchase, improvement and repair of the Hotel and other properties and assets owned and/or operated by one or more (defendant).”

In the current case, the Securities and Exchange Commission claims the pair — doing business as Urban Commons LLC — engaged in a pair of fraud schemes. In the first, they allegedly convinced investors to sell their interests in the hotels, promising them profitable returns when the properties, including the Queen Mary, were sold to a third-party buyer.

Prosecutors contend, however, that the pair actually planned to retain ownership of the properties and list them in an overseas real estate investment trust.

“In a second scheme, perpetrated in 2021 after the REIT had filed for bankruptcy, the complaint alleges that Woods and Wu raised at least $1.775 million from a second set of investors to purchase the same hotels out of bankruptcy,” according to the Securities and Exchange Commission. “The defendants allegedly told investors that their funds would be held in escrow, used only to fund the hotels’ purchase, and returned to investors if the bid was unsuccessful.”

Prosecutors contend, however, that Woods and Wu “misappropriated virtually all investors’ funds,” using the money mostly for business and personal expenses.

Speaking to the Long Beach Post, Wu’s attorney denied any wrongdoing, saying the case is based on a “lack of understanding how these transactions were structured.”

The city of Long Beach regained control of the Queen Mary in 2021 when Urban Commons surrendered its leases for oversight of the deteriorating vessel.

City officials said the company violated multiple lease provisions, “including failure to maintain the ship caused in part by decades of deferred maintenance by former operators of the ship.”