Feds loan millions to Lawrence firm with alleged connection to Oread hotel tax scheme
The same month a Lawrence businessman reported to a federal prison, a business connected to him received a $9 million loan from the federal government.
Warren L.C., a Lawrence-based company, was approved for a loan in August under the Federal Reserve’s Main Street Lending Program, one of several federal programs set up to help businesses weather the COVID-19 pandemic.
The company is owned by Dru Fritzel, the wife of Lawrence developer Thomas Fritzel, who is currently serving a one-year sentence at a minimum security federal prison in South Dakota for two felony convictions.
Thomas Fritzel, the owner of the Oread Hotel in Lawrence, pleaded guilty earlier this year to fraud, admitting that the Oread had submitted false sales tax returns to the state of Kansas to benefit from the special taxing district the city had set up around the hotel.
The false returns presented sales from affiliated companies as taking place within the special taxing district — defrauding Lawrence of more than $400,000 in tax revenue from 2009 to 2015.
Warren L.C. was among the 30 companies involved in the scheme, the city of Lawrence alleged in a 2016 civil complaint. Fritzel settled the civil case with Lawrence in 2017 before facing prosecution in the federal criminal case the following year.
“We had questions about what was going on in that district … and one of the things that was important to us was to make the city whole (getting the lost revenue back) and that’s what happened,” said state Rep. Mike Amyx, a Democrat who served as Lawrence’s mayor in 2016.
Asked if he had concerns about the federal loan to a Fritzel-linked company, Amyx said he had to “assume there’s always safeguards in place to ensure whoever’s receiving that meets all those necessary requirements, so I hope that was the case.”
It’s not immediately clear what Warren L.C. does.
Warren L.C. is registered with the U.S. Department of Transportation as a private cargo carrier that transports garbage and refuse within the state of Kansas. The company has three drivers, according to the Department of Transportation.
Dru Fritzel, when asked by a Star reporter last week, said Warren L.C. is a construction company.
According to city records, the company has a sign-hanging license.
The physical address for the company is the Fritzels’ home in Lawrence, while the mailing address is for a P.O. Box associated with Tucker Fritzel, the couple’s son.
Diane Stoddard, assistant city manager for Lawrence, said in an email that the city had not been able to substantiate specific allegations of Warren L.C.’s involvement in the Oread taxing jurisdiction matter before the lawsuit was settled.
The lawsuit was not in the courts for long before the parties reached a settlement. Lawrence filed suit against Thomas Fritzel and others in November 2016. The case settled the following May.
Ed Novak, a Polsinelli attorney who represented Fritzel in his criminal case, said he did not know the answer to specific questions about Warren L.C. and his client. Steve Six, who represented Fritzel in his civil case with Lawrence, did not respond to an email.
While Dru Fritzel is the listed owner of the company, her husband signed on her behalf the annual report that the company filed with the Kansas Secretary of State’s office as recently as 2019 for the 2018 tax year.
Dru Fritzel acknowledged her husband’s previous involvement with the firm, but said he had not had an active role in recent years.
“He was a manager a long time ago, but he signed those rights away a while ago,” she said. “He is not a manager, he is not an owner. I’m 100 percent owner of the company.”
Answering only a few questions on the porch of her northwest Lawrence home, Dru Fritzel said Warren L.C. was never involved in the Oread tax scheme.
“That was not an issue,” she said. “The city thing was like completely done and settled. And Warren was not a part of that.”
She offered few details on what kind of work Warren L.C. performs or how many people it employs.
“Technically, I’m not exactly sure how many employees fall under Warren,” she said. “We have several different companies, so it’s not easy for me to switch on and off.”
Dru Fritzell acknowledged receiving the Main Street loan and said it was important for the company to stay in business.
“Just to keep a business going basically. We have continuous work that we need to keep going for projects,” she said.
The rules for the Main Street Lending Program require that no company qualify if an owner of 20% or more equity has been convicted of a crime within the last year. Warren L.C. likely meets that standard because the ownership stake is in Dru Fritzel’s name rather than Thomas Fritzel’s.
But Accountable US, a watchdog group with ties to national Democrats, contends the loan to the Kansas business shows a troubling lack of oversight with the program.
“This money was meant to help Main Street businesses stay above water during the pandemic, not help those neck-deep in tax fraud issues,” said Derek Martin, the group’s spokesman and a Kansas native. “But instead of reforming the program, the Trump team is shutting it down to spite the next administration.”
The future of the Main Street Lending Program is uncertain. Treasury Secretary Steve Mnuchin announced in November that he would not approve an extension past December 31. The bulk of $600 billion the program authorized for business loans has gone unallocated as of December 1.
The Federal Reserve declined to weigh in on the loan to Warren L.C., saying it does not comment on individual loans.
The U.S. Attorney’s Office for the District of Kansas, which prosecuted Thomas Fritzel, declined to comment on the matter.
Thomas Fritzel has unsuccessfully sought to be transferred from the prison in South Dakota during the COVID-19 pandemic to confinement at the couple’s home in Lawrence, the address which Dru Fritzel lists on paperwork related to Warren L.C.
The Federal Bureau of Prisons confirmed he remains at prison in Yankton, South Dakota, and has a projected release date of July 2021.
Like the more widely used Paycheck Protection Program, the Federal Reserve’s loans required underwriting by banks. The $9 million loan made to Warren L.C. was facilitated by Topeka-based Silver Lake Bank.
Many recipients of PPP loans expected to have them forgiven. But the larger Main Street loans have strict repayment requirements, said Patrick Gideon, president and chief executive of Silver Lake Bank.
“I think a lot of people looked at it and didn’t like some of the stipulations and requirements of the program,” he said. “So we had very little interest in companies going to that Main Street program. That’s what they found kind of across the country.”
Gideon said his bank helped more than 400 businesses with PPP loans, but only underwrote a single Main Street loan. He declined to speak about the Warren L.C. loan specifically, but said the bank wouldn’t have aided an applicant who did not meet the program’s clear guidelines.
“We always play by the rules. And the rules were very clear,” he said. “If you’ve got something that’s going to keep you out of it that’s glaring or obvious, banks aren’t going to touch it. And I assume that the Fed would have done the same kind of thing because you’re talking about a lot of money.”
The Federal Reserve required underwriting banks to back 5% of the principal amount. That means Silver Lake Bank would be on the hook for $450,000 of the $9 million loan made to Warren L.C. With that kind of exposure, Gideon said it was in the bank’s own interest to fully vet applicants.
While he would not comment on the Fritzels specifically, Gideon said that the loan process scrutinized the backgrounds and creditworthiness of individual applicants — not those of their partners or relatives.
“If I was your partner in a business but I didn’t own any of the business and you did, and I had issues, that wouldn’t preclude you from getting a loan,” he said. “I think that’s where you’re trying to tie two strings together where they don’t tie together.”
This story was originally published December 7, 2020 at 2:53 PM with the headline "Feds loan millions to Lawrence firm with alleged connection to Oread hotel tax scheme."
