City Wants More From QDSI Deal

By Harry Saltzgaver
Executive Editor

City Attorney Robert Shannon has made good on his threat to fight a settlement between the former operator of the Queen Mary and the bankruptcy trustee.

Shannon’s filing opposes a deal where Joseph Prevratil and Howard Bell, CEO and CFO of Queen’s Seaport Development, Inc., would give up a condominium in Hawaii valued at $1 million in exchange for waiving any future claims. Bankruptcy Trustee Howard Ehrenberg reached the settlement after Shannon convinced him to seek additional money from Prevratil, claiming that money transfers were made inappropriately before and during the QSDI bankruptcy proceeding.

Ehrenberg originally had been asked to make the filing, then turn the case over to the city attorney’s office, with the promise that the city would receive half of any money recovered. Instead, he made the deal to settle for the condo and sell it, with the proceeds going to the bankruptcy trust.

The city of Long Beach likely would receive just more than $300,000 of that if the judge approves the settlement at a June 24 hearing. That is about the amount the city has spent on an outside audit of accounts from QSDI, the RMS Foundation (the nonprofit operator of the ship under Prevratil) and Prevratil’s management firm, Leisure Horizons, Inc.

“Given the pending and potential claims against Prevratil, LHI and Bell, the proposed settlement is below the range of reasonableness,” the city’s motion states. “… The Trustee is potentially walking away from a judgment (or later settlement) that could be worth millions of dollars.”

The city claims Prevratil improperly transferred money from QSDI to both the RMS Foundation and LSI, that Bell and Prevratil purchased the Hawaii condo and took other exorbitant payments even though QSDI was failing financially and that Prevratil is benefiting from a large life insurance plan paid for by QSDI that should have been a QSDI asset. In total, the city says the amount owed could be as much as $8 million.

Prevratil said that the current claims don’t take into account large loans he made to QSDI to handle cash flow problems, with the transfers being discussed actually only repayments of those loans. The insurance policy was designed as both a key man protection and a retirement plan, while salaries and the bonus use for the condo down payment all were approved by the company’s board.

“The trustee has reviewed all of this and concluded there was nothing to pursue,” Prevratil said. “This is nothing new except the packaging… Only after the trustee decided not to pursue this, only then did the city spend $300,000 to get the results they want.

“To go over the same thing over and over again is so discouraging.”

Prevratil has said that he agreed to give up the condominium because he could no longer afford to fight the legal battles, not because he thought something had been done improperly.

The bankruptcy trustee, Howard Ehrenberg, argued in the filing of the settlement that it would be very difficult to prove wrongdoing in regards to the transfers, and that the only tangible asset to collect is the condo. He said in his filing that the property transfer was the best possible result with the least possible cost.

Shannon’s motion disputes those conclusions, and makes an argument to pursue “justice” in the case.

“The pattern of non-disclosure by the Debtor-in-Possession and Insiders — the money transfers, The Hawaii Condo, the insurance policy — in addition to the post-petition increase in loan balance due from RMS to QSDI, is shocking, and presents a strong case of actual fraud,” the statement says in bold type.

The city’s motion asks the court to deny the motion for the settlement or to at least postpone the ruling for 45 days.

and conduct evidentiary hearings. The motion transferring the complaint from the bankruptcy trustee to the city also still is on the docket on July 15, pending the outcome of the June 24 hearing.

The June 24 hearing is in front of Judge Vincent P. Zurzolo in downtown Los Angeles.

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