Feds indict developers of Pere Marquette in downtown Peoria on charges of money laundering

PEORIA — The former owners of the Hotel Pere Marquette were indicted this week on charges of money laundering and mail fraud. 

A 26-page indictment, returned late Tuesday, accuses Gary Matthews and Monte Brannan of diverting $750,000 of hotel funds to themselves after the hotel went into foreclosure. They are accused of taking approximately $1.6 million away from the hotel's bank accounts and putting it into their own. 

The charges allege the two men caused $13.8 million to be moved from a hotel management account into an account they controlled. 

The project has become an albatross around City Hall's neck after the project was foreclosed upon, leaving taxpayers on the hook for between $7 to $8 million. 

Both men face charges of conspiring to commit money laundering, money laundering and mail fraud. Those are felonies that could put them behind bars for up to 20 years and result in hefty fines. Brannan, it is alleged in two counts, hid assets, including money and a convertible, while the hotel was in bankruptcy proceedings 

City Hall had little to say about the charges. When reached, City Manager Patrick Urich said only, 'The indictment speaks for itself."

When reached Wednesday morning, Matthews, 78, said he had no knowledge of any charges filed against him. A message left for Brannan, 67, was not immediately returned. City Hall officials did not immediately respond to requests for a comment.

They are not yet scheduled to appear in U.S. District Court in Peoria. That hearing will likely come within a few days and probably occur over the court's video-conferencing system due to the pandemic.

The indictment alleges the activity started back in 2008 when Matthews approached the city with a grand vision to build a gleaming glass hotel next to a revitalized Pere Marquette, the city's oldest operating hotel, which had fallen hard times. 

Prosecutors claim Matthews used money from initial investors not for the intended purpose of the development but rather for interest, taxes, credit card payments and other expenses related to his business ventures. 

The charges further allege that Matthews promised to pay those initial investors interest on their pledges but didn't. 

After many starts and stops, the Pere and its accompanying Courtyard, for which designs were later downscaled, opened in 2013. At the time, it was seen as a possible way for the city to invest in Downtown's revitalization and at the same time, make extra money to help with its money issues.

It was during those starts and stops, as well as after the hotels opened, that the two allegedly diverted money from the hotel's coffers to themselves.

In 2016, just three years after it opened, the hotels were in danger of losing their affiliation with the Marriott chain due to Matthews being behind in making payments.

Then in 2017, the hotel’s biggest investor began foreclosure proceedings in Peoria County Circuit Court. The INDURE Build-to-Core Fund, an arm of the Washington, D.C.-based National Real Estate Advisors, wanted a judgment of almost $39 million and the sale of the property to pay back the investment.

To stave off that, the developers filed for bankruptcy -- but the indictment alleges they stalled and delayed, which allowed them to maintain access to the money within the hotel's bank accounts. 

The indictment alleges that back in 2011 through 2014, Matthews and Brannan used some of the CORE fund, which totaled about $28 million by 2014, for their own uses and other business ventures not related to the Pere. 

In 2019, Matthews and Brannan sued the city, alleging it worked against them to the detriment of the hotel and to the taxpayers. Because of the city’s actions, they claimed, the hotel went into foreclosure, and the developers were forced out and lost millions. Taxpayers are now on the hook for some $7 million, the suit claims.

That suit is still pending in Peoria County Circuit Court.

But the indictment alleges that 2014, the developers violated a "side letter agreement" with city officials that barred them from taking money out of the hotel without permission. The charges allege the two falsely stated the hotel's finances were in order and neither man had received developer or management fees.

Instead, the charges allege they had gotten paid and also used the documents to hide that fact. 

The indictment further alleges Matthews and Brannan directed First Hospitality Group management, which ran the day to day operations at that time, to transfer monthly payments from the hotel accounts to an account they controlled.

In defiance of terms of the loans, "Matthews and Brannan allegedly used FHG to fraudulently obtain funds for themselves from the revenues of the hotels," the indictment alleged. At that time, the charges allege, the men knew FHG was unable to pay other financial obligations of the hotels, including payments to Marriott and vendors.

But in Matthews' and Brannan's separate bankruptcy case, which the city has been a party to in the hopes of getting some of its money back, it appears City Hall had some inkling of what was going on.

Luciano:Federal indictment adds to muddy trail of Gary Matthews' malarkey

In a filing in March 2018, city-hired attorneys alleged the two men "siphoned off $1.6 million for themselves in violation of a side agreement with the city." 

"Documents received by Peoria from South Side Bank & Trust indicate that debtors and their managers have diverted over $1.6 million to themselves over the past several years, in flagrant and repeated violation of contractual commitments to Peoria, while property taxes for the hotels were not being paid, in violation of an escrow agreement requiring monthly payments; hotel, restaurant and amusement taxes owed to Peoria were not being paid; Marriott (the franchisor for the hotels) was not being timely paid, resulting in loss of functionality of the reservation system for the hotels and attendant loss of revenues; and the plaintiff in the foreclosure case was not being paid," the filing stated in part.