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May 21, 2013 | 02:13 PMELKHORN — Chandra Webster, former chief financial officer for Geneva Hospitality, has been given one more chance to produce the accounting documents for The Cove of Lake Geneva hotel, or she will face jail time for contempt of court.
At a court hearing on May 16, Judge John Race said he will give Webster until the end of this week to produce the required documents, or he will seriously consider the request by attorney Michael Polsky that Webster serve her time for contempt.
Polsky, the court-appointed receiver for the financially-troubled Cove, indicated frustration with a lack of accounting information provided by Geneva Hospitality and with Webster's refusal to answer questions during two depositions that might have cleared up what happened to the money.
Webster was cited for contempt by Race on Jan. 18 after she failed to turn over financial documents to the court.
That same month, Webster later showed up at Polsky's Milwaukee office with boxes of financial documents. The contempt order then was held in abeyance.
On May 10, Polsky entered a brief asking the court to enforce the contempt order against Webster. Polsky argued that the documents Webster turned over were inadequate, and that she never turned over the accounting data as ordered by the court.
The Condominium Association, owner of the 222-room Cove of Lake Geneva, 111 Center St., was taken to court by PNC Bank, Lake Geneva, in July 2012.
The bank alleges that payment for two loans, one for $1.65 million made to the Cove in 2007 and an even earlier loan for $250,000, were overdue.
Geneva Hospitality is not named in the lawsuit.
The Cove is a condotel.
The hotel rooms in the building are owned by individuals.
Geneva Hospitality was removed as the Cove's management company in November 2012. Before a court order could be given or a new manager hired, Webster and others reportedly removed laptop and desktop computers along with the digital and paper records
Geneva Hospitality argues that the computers and records were its property.
Since then, Polsky has been trying to track down money paid by the condo owners to Geneva Hospitality for the addition of a banquet facility, which PNC bank claims it never received.
Race did not act on Polsky's request to jail Webster. He noted that Webster is not a defendant in the lawsuit. But he again ordered Webster to turn over the records required by the receiver, setting the deadline for this week.
Webster's attorney, Jerome F. Buting, Brookfield, argued that Webster turned over all of the financial documents in her possession.
The court, however, disagreed with Buting's assessment.
Buting argued that because of statements made by Polsky and Lake Geneva Police Chief Michael Rasmussen alleging criminal wrongdoing, "Webster has a real and appreciable fear" statements she makes will be used against her later.
A Dec. 26, 2012, letter, sent from Rasmussen to Cove room owners says in part:
"The city of Lake Geneva Police Department in conjunction with the Wisconsin Department of Justice Division of Criminal Investigation, the FBI and the IRS have opened an investigation into Salvatore Sardina and Chandra Webster, the owners of your former management group, Geneva Hospitality.
"This investigation involves misappropriation of funds that were to be set aside for mortgage payments related to the banquet facility. If you are an owner of one or more of the condo units, we will need your help.
"Please refer to the attached letter, which outlines records and supporting documents you will need to obtain. Please follow the directions in the attached letter and personally deliver fax or mail the information to the Lake Geneva Police Department, attention: Cove Investigation."
Deadline for complaints was Jan. 18.
Polsky argued the documents that Webster turned over do not provide enough information to determine the trail of the missing money, which Polsky estimates at $634,604.
Polsky said bank records for Geneva Hospitality are missing for important months after he was appointed receiver. No money has been turned over to the receiver by Geneva Hospitality since it was terminated as hotel manager, he said.
In his May 10 brief, Polsky wrote: "Webster is guilty of hiding relevant accounting information constructing road blocks to the receiver's attempts to get to the truth and theft of hundreds of thousands of dollars from the unit owners."
Buting said Webster turned over all of the documents in her possession and even documents that were the property of Geneva Hospitality.
Buting also argued that, as a matter of law, Webster is not subject to contempt in a civil case unless she is first granted immunity. Webster's attorney also contests Polsky's claim of unaccounted funds. He said that the receiver's belief is based on an inventory of financial documents done by the new management firm, IDM, Madison.
But Buting argues that the IDM inventory is flawed.
"Most of what (IDM) thinks is missing has either never existed or is no longer in Webster's possession and can no longer be produced," he said.
Webster did say during the depositions that she believes she turned over all bank statements and documents in her possession.
According to Polsky, certain account records showed transfers of $76,000, $95,000 and $100,000 by Geneva Hospitality to an unidentified account just before the hotel was placed in receivership.
The court also heard testimony that Geneva Hospitality received $65,000 from a Groupon coupon promotion for the Cove. The money was never turned over to the Cove or to the receiver, Polsky claims.
Polsky argues that Webster was given the chance to clear her name and provide documents to the receiver to clear up questions about where the missing funds are located.
She refused, he said.
In his brief supporting contempt against Webster, Polsky cites the following.
n Webster did not answer questions regarding missing documents and funds.
n She would not say whether any funds owed to unit owners exists in an account anywhere today and if they do exist, where they are deposited.
n She took the Fifth when asked what line of business Geneva Hospitality was in.
She also took the Fifth on:
n The number of accounts Geneva Hospitality has now.
n Whether Geneva Hospitality has closed any bank accounts since January 2012.
n Where rental funds were deposited.
n Whether Geneva Hospitality has an account anywhere.
Webster was deposed on March 18 and again on April 15. In the record of the April deposition, attorneys Buting and David C. Williams, representing Geneva Hospitality, spoke more often in response to questions by attorneys David Pelletier and Polsky than Webster, raising multiple objections to questions on and advising her not to answer on Fifth Amendment grounds.
Pelletier represents an official committee of Cove condo owners.