letter-to-langford-pace-second-interview.docx

1021-00008 · Client 1021 · Correspondence

letter-to-langford-pace-second-interview.docx DOCUMENT Litigation

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CALDERWOOD & HARKNESS LLP Attorneys at Law 200 South Biscayne Boulevard, Suite 4400 Miami, Florida 33131 Telephone: (305) 728-4000 Facsimile: (305) 728-4001 www.calderwoodharkness.com

October 30, 2023

VIA EMAIL AND U.S. MAIL

Candace O'Brien Langford, Esq. Langford Pace LLP 101 South Monroe Street, Suite 900 Tallahassee, FL 32301

Re: Internal Investigation — Verimark Hospitality Group Inc.; Second Interview Request — Nicole Prescott C&H Matter No. 1021-00008

Dear Ms. Langford:

I write in my capacity as the Responsible Partner at Calderwood & Harkness LLP on behalf of our client, the Audit Committee of the Board of Directors of Verimark Hospitality Group Inc. ("VHG"), in connection with the above-referenced investigation. At the outset, I wish to thank you and your client, Ms. Nicole Prescott, for your participation and cooperation during the initial interview conducted on October 11, 2023. Ms. Prescott's willingness to meet with the investigation team was noted and appreciated.

I am writing to advise you that, since the October 11 interview, the investigation team's continued document review and forensic analysis have produced additional evidence bearing on matters within the scope of this investigation that we need to address with Ms. Prescott. Accordingly, the Audit Committee, through undersigned counsel, formally requests a second interview of Nicole Prescott, Vice President of Finance of Verimark Coastal Resorts LLC ("VCR"), a wholly owned subsidiary of VHG. The purpose of this letter is to explain the basis for this request, to outline the subject areas the investigation team intends to cover, and to propose logistics for scheduling the interview at a mutually convenient time.

I. Background — Investigation Context

As you are aware, Calderwood & Harkness LLP was retained by the Audit Committee of the Board of Directors of VHG — chaired by Diane Kowalski, with members Reginald Faulkner and Sandra Yeung — pursuant to an engagement letter dated July 17, 2023, to conduct an independent internal investigation into revenue-recognition irregularities and expense-reporting irregularities at VCR. The investigation was formally opened on July 24, 2023, at which time document-preservation notices were issued to relevant custodians, including Ms. Prescott.

As a result of preliminary findings and the investigation team's assessment of the evidence, Ms. Prescott was placed on administrative leave effective August 7, 2023, pending the outcome of the investigation. Ms. Prescott remains a current employee of VHG and VCR, subject to all obligations attendant to her employment, including the duty to cooperate with this investigation.

Ms. Prescott's first interview was conducted on October 11, 2023, at Calderwood & Harkness's Miami offices. You were present throughout that interview as Ms. Prescott's personal counsel. At the outset of that session, Upjohn warnings were administered, and Ms. Prescott acknowledged her understanding of the scope and nature of the representation. The interview covered a range of topics, including Ms. Prescott's role and responsibilities as VP of Finance, VCR's revenue-recognition practices for timeshare-interest sales, and certain vendor-payment questions. As discussed below, subsequent investigative work has generated additional evidence and questions that necessitate a follow-up session.

II. Explanation of Need for Second Interview — Additional Evidence Developed

Since the October 11 interview, the investigation team has continued its review and analysis of documentary and financial evidence. I summarize below the principal areas of additional evidence that have prompted this request.

A. Evidence Concerning Clearwater Design Collective Inc.

Since the October 11 interview, the investigation team, working with Crestline Forensic Advisory LLC ("Crestline"), the Audit Committee's forensic accounting advisor retained under the Kovel doctrine, has completed additional forensic analysis concerning an entity known as Clearwater Design Collective Inc. ("CDC"). CDC is a Florida corporation that was filed with the Florida Division of Corporations on June 4, 2021. Based on corporate records and other evidence gathered during the course of this investigation, the investigation team's records reflect that Ms. Prescott is the sole shareholder and registered agent of CDC.

Crestline's forensic analysis has identified sixteen (16) invoices submitted by CDC to VCR between approximately August 2021 and May 2023, totaling Five Hundred Eighty-Seven Thousand Six Hundred Dollars ($587,600). These invoices purport to relate to capital-improvement work at various VCR-managed properties. However, the investigation team has developed evidence suggesting that these invoices correspond to fictitious purchase orders created within VCR's financial systems — specifically, purchase orders that do not appear to be supported by valid work orders, contracts, or evidence that the purported capital-improvement work was actually performed.

Furthermore, Crestline's fund-flow tracing has identified payments directed from VCR operating accounts to bank accounts controlled by CDC, with subsequent disbursements from those CDC accounts to accounts and expenditures that appear to be personal in nature, rather than payments to subcontractors or suppliers for capital-improvement work. The pattern and timing of these disbursements raise significant questions about the legitimacy of the CDC invoices and the ultimate disposition of VCR funds.

The investigation team wishes to question Ms. Prescott about the following topics in connection with this evidence, among others:

(a) Ms. Prescott's ownership of, and involvement with, Clearwater Design Collective Inc., including the circumstances of its formation and its business purpose;

(b) Ms. Prescott's knowledge of, and role in, the process by which CDC invoices were submitted to, and approved within, VCR's accounts-payable system;

(c) The nature of the work purportedly performed by CDC at VCR properties, including whether any such work was actually performed and, if so, the identity of any individuals or subcontractors who performed it;

(d) The disposition of funds received by CDC from VCR, including the purpose and recipients of subsequent disbursements from CDC bank accounts; and

(e) Whether Ms. Prescott disclosed her interest in CDC to VCR management or VHG, and whether any approvals were obtained for related-party transactions, consistent with VHG's Code of Conduct and Related-Party Transaction Policy.

B. Evidence Concerning the Revenue-Recognition Scheme

In addition to the CDC-related evidence, the investigation team's continued document review has yielded further evidence regarding the mechanics of VCR's premature recognition of timeshare-interest deposits as completed-sale revenue. To date, the investigation team has reviewed approximately 347,000 documents from the roughly 1.2 million documents collected from custodial and non-custodial sources in the course of this investigation. That review has produced additional communications and records bearing on Ms. Prescott's involvement in VCR's revenue-recognition practices.

Specifically, the evidence developed to date suggests that Ms. Prescott, in her capacity as Vice President of Finance of VCR, implemented and directed the practice of booking timeshare-interest purchase deposits as completed revenue upon the signing of purchase agreements by prospective timeshare purchasers, rather than upon expiration of the statutory ten (10)-day rescission period provided under Florida Statute § 721.10. Under applicable Florida law, a purchaser of a timeshare interest has the right to cancel the purchase agreement within ten days of execution, and any deposits received during the rescission period are subject to full refund. The premature recognition of such deposits as completed revenue, before the rescission period has lapsed, results in the overstatement of VCR's reported revenue and is inconsistent with applicable accounting standards.

This practice has been identified at two VCR properties:

(i) Coral Dune Resort & Residences, located at 14200 Emerald Coast Parkway, Destin, Florida 32541; and

(ii) Palmetto Bluff Club, located at 3950 Longboat Key Drive, Sarasota, Florida 34228.

Based on the forensic analysis performed by Crestline, the aggregate revenue overstatement attributable to this practice across the four-quarter period from the third quarter of 2022 through the second quarter of 2023 is estimated at Twenty-Six Million Four Hundred Thousand Dollars ($26.4 million), broken down as follows:

The investigation team has identified additional documents and communications — including internal emails, journal-entry support, and financial-system records — that it wishes to discuss with Ms. Prescott regarding her role in directing or implementing this revenue-recognition practice and her awareness that the approach was inconsistent with Accounting Standards Codification ("ASC") Topic 606, Revenue from Contracts with Customers, as well as VHG's stated accounting policies and internal controls. The investigation team also intends to explore Ms. Prescott's interactions with VCR's external auditors and any representations made to those auditors regarding VCR's revenue-recognition methodology.

C. Relationship to Other Evidence

I wish to note for your awareness that the investigation has also examined the activities of two other entities — Gulf Standard Contracting LLC and Suncoast Property Services LLC — in connection with VCR's vendor-payment processes. The investigation team's analysis of these entities, together with CDC, has identified a broader pattern of fictitious-vendor invoicing involving a total of forty-seven (47) purchase orders across the three entities, with aggregate payments totaling approximately One Million Eight Hundred Thirty Thousand Dollars ($1.83 million). The investigation team may have questions for Ms. Prescott about her awareness of, or involvement with, Gulf Standard Contracting LLC and Suncoast Property Services LLC and the broader fictitious-vendor scheme.

In addition, I note that the investigation team's analysis of the evidence discussed above was informed in part by information developed through other witness interviews conducted during the course of this investigation. While I am not in a position to disclose the identities of specific cooperating witnesses or the privileged substance of those interviews, I raise this point so that Ms. Langford and Ms. Prescott are aware that the additional evidence prompting this request derives from multiple independent sources.

III. Proposed Logistics

The Audit Committee requests that the second interview of Ms. Prescott be scheduled at a mutually convenient date during the week of November 6, 2023, or as soon as practicable thereafter. We recognize Ms. Langford's and Ms. Prescott's scheduling constraints and are prepared to work cooperatively to identify a date and time that is feasible for all parties.

We propose that the interview be conducted at Calderwood & Harkness's offices at 200 South Biscayne Boulevard, Suite 4400, Miami, Florida 33131. Alternatively, if in-person attendance is not feasible, we are prepared to conduct the interview by secure video conference using an encrypted platform, consistent with the confidentiality requirements of the investigation. We will coordinate the technical details of any video-conference arrangement in advance to ensure a smooth and secure session.

The investigation team estimates that the second interview will require approximately three to four (3–4) hours to complete, though the actual duration may vary depending on the scope of Ms. Prescott's responses and the need for follow-up questions.

We confirm that Ms. Langford is welcome and expected to attend the interview in her capacity as Ms. Prescott's personal counsel, consistent with the arrangement at the October 11 session. As with the first interview, Upjohn warnings will be administered at the outset of the second interview, in accordance with the protocol established at the prior session. Specifically, the investigation team will remind Ms. Prescott that:

(a) Calderwood & Harkness LLP represents the Audit Committee of the Board of Directors of VHG in connection with this investigation, and does not represent Ms. Prescott individually;

(b) The attorney-client privilege with respect to the interview belongs to VHG and its Audit Committee, not to Ms. Prescott, and that VHG may elect to waive or assert that privilege at its sole discretion, including by disclosing the substance of Ms. Prescott's statements to third parties, including governmental authorities; and

(c) The contents of the interview are confidential and should not be disclosed by Ms. Prescott to third parties outside of her attorney-client relationship with Ms. Langford.

IV. Document Requests Accompanying the Interview

In connection with the second interview, the Audit Committee requests that Ms. Prescott, through counsel, preserve and make available for review by the investigation team any personal records, communications, or financial documents in her possession, custody, or control relating to Clearwater Design Collective Inc. This request includes, but is not limited to:

(a) Articles of incorporation, operating agreements, and any other formation or governance documents for CDC;

(b) Bank account records for any accounts held in the name of, or for the benefit of, CDC, including account statements, deposit records, wire-transfer records, and canceled checks;

(d) Invoices, contracts, proposals, or work orders issued by CDC to VCR or any other VHG subsidiary;

(e) Correspondence — whether by email, text message, or other medium — between Ms. Prescott and any VCR or VHG personnel regarding CDC invoices, payments, or purported capital-improvement work; and

(f) Any other documents or records that relate to CDC's business activities, financial transactions, or relationship with VCR.

Please note that this request is in addition to, and does not supersede, the document-preservation obligations communicated to Ms. Prescott in the preservation notices dated July 24, 2023. Ms. Prescott's obligation to preserve all potentially relevant documents, communications, and data, as specified in those notices, remains in full force and effect. The investigation team expects that Ms. Prescott has complied, and will continue to comply, with those obligations.

V. Privilege and Confidentiality

I take this opportunity to remind you of the confidential nature of this investigation and the Audit Committee's expectation that the substance of prior and future interviews — including the topics, questions, and information discussed — not be disclosed to third parties outside of the attorney-client relationship between you and Ms. Prescott. This confidentiality expectation extends to the contents of this letter and any communications between our respective offices regarding the scheduling and conduct of the second interview.

As you are aware, this investigation is being conducted under the direction and at the instruction of the Audit Committee of the Board of Directors of VHG. All communications between Calderwood & Harkness and the Audit Committee, and all work product generated in connection with this investigation, are protected by the attorney-client privilege and the work-product doctrine. The Audit Committee has not authorized the disclosure of any privileged communications or work product to any party, and nothing in this letter should be construed as a waiver of any applicable privilege or protection.

VI. Cooperation Expectations

As noted above, Ms. Prescott remains a current employee of VHG, albeit on administrative leave. VHG expects the continued cooperation of Ms. Prescott with this investigation, consistent with her obligations as an employee under VHG's policies, including the Code of Conduct and the Employee Handbook, both of which require employee cooperation with internal investigations. The investigation team recognizes the seriousness of the matters under review and is committed to conducting the second interview in an efficient and professional manner. It is our hope that the additional questions arising from the evidence described above can be fully addressed through this interview, and we will make every effort to ensure that the process is conducted respectfully and with appropriate consideration for Ms. Prescott's rights.

VII. Closing

We respectfully request that you confirm Ms. Prescott's availability for the second interview during the week of November 6, 2023, or propose alternative dates as soon as practicable, along with your agreement to schedule the interview. Please direct all correspondence and scheduling communications to me at the contact information below:

Howard Quinn Partner, White Collar & Investigations Calderwood & Harkness LLP 200 South Biscayne Boulevard, Suite 4400 Miami, FL 33131 Direct: (305) 728-4112

Email: hquinn@calderwoodharkness.com

Thank you for your attention to this matter. We look forward to hearing from you at your earliest convenience.

Very truly yours,

CALDERWOOD & HARKNESS LLP

By: ________

Howard Quinn Partner, White Collar & Investigations

cc (via email):

Conrad Ashby, Esq., Calderwood & Harkness LLP Liam Donahue, Esq., Calderwood & Harkness LLP Patricia Navarro, Esq., General Counsel, Verimark Hospitality Group Inc.*

*The copy to Ms. Navarro is provided for coordination purposes only and does not affect or diminish the Audit Committee's independent direction of this investigation. Ms. Navarro has not been consulted regarding, and does not exercise authority over, the substance or strategy of the investigation.

PRIVILEGED AND CONFIDENTIAL — ATTORNEY-CLIENT PRIVILEGE / ATTORNEY WORK PRODUCT

Quarter	Estimated Revenue Overstatement
Q3 2022 (July – September 2022)	$4,700,000
Q4 2022 (October – December 2022)	$6,100,000
Q1 2023 (January – March 2023)	$9,800,000
Q2 2023 (April – June 2023)	$5,800,000
Total	$26,400,000

CALDERWOOD & HARKNESS LLP Attorneys at Law 200 South Biscayne Boulevard, Suite 4400 Miami, Florida 33131 Telephone: (305) 728-4000 Facsimile: (305) 728-4001 www.calderwoodharkness.com
October 30, 2023
VIA EMAIL AND U.S. MAIL
Candace O'Brien Langford, Esq. Langford Pace LLP 101 South Monroe Street, Suite 900 Tallahassee, FL 32301
Re: Internal Investigation — Verimark Hospitality Group Inc.; Second Interview Request — Nicole Prescott C&H Matter No. 1021-00008
Dear Ms. Langford:
I write in my capacity as the Responsible Partner at Calderwood & Harkness LLP on behalf of our client, the Audit Committee of the Board of Directors of Verimark Hospitality Group Inc. ("VHG"), in connection with the above-referenced investigation. At the outset, I wish to thank you and your client, Ms. Nicole Prescott, for your participation and cooperation during the initial interview conducted on October 11, 2023. Ms. Prescott's willingness to meet with the investigation team was noted and appreciated.
I am writing to advise you that, since the October 11 interview, the investigation team's continued document review and forensic analysis have produced additional evidence bearing on matters within the scope of this investigation that we need to address with Ms. Prescott. Accordingly, the Audit Committee, through undersigned counsel, formally requests a second interview of Nicole Prescott, Vice President of Finance of Verimark Coastal Resorts LLC ("VCR"), a wholly owned subsidiary of VHG. The purpose of this letter is to explain the basis for this request, to outline the subject areas the investigation team intends to cover, and to propose logistics for scheduling the interview at a mutually convenient time.
I. Background — Investigation Context
As you are aware, Calderwood & Harkness LLP was retained by the Audit Committee of the Board of Directors of VHG — chaired by Diane Kowalski, with members Reginald Faulkner and Sandra Yeung — pursuant to an engagement letter dated July 17, 2023, to conduct an independent internal investigation into revenue-recognition irregularities and expense-reporting irregularities at VCR. The investigation was formally opened on July 24, 2023, at which time document-preservation notices were issued to relevant custodians, including Ms. Prescott.
As a result of preliminary findings and the investigation team's assessment of the evidence, Ms. Prescott was placed on administrative leave effective August 7, 2023, pending the outcome of the investigation. Ms. Prescott remains a current employee of VHG and VCR, subject to all obligations attendant to her employment, including the duty to cooperate with this investigation.
Ms. Prescott's first interview was conducted on October 11, 2023, at Calderwood & Harkness's Miami offices. You were present throughout that interview as Ms. Prescott's personal counsel. At the outset of that session, Upjohn warnings were administered, and Ms. Prescott acknowledged her understanding of the scope and nature of the representation. The interview covered a range of topics, including Ms. Prescott's role and responsibilities as VP of Finance, VCR's revenue-recognition practices for timeshare-interest sales, and certain vendor-payment questions. As discussed below, subsequent investigative work has generated additional evidence and questions that necessitate a follow-up session.
II. Explanation of Need for Second Interview — Additional Evidence Developed
Since the October 11 interview, the investigation team has continued its review and analysis of documentary and financial evidence. I summarize below the principal areas of additional evidence that have prompted this request.
A. Evidence Concerning Clearwater Design Collective Inc.
Since the October 11 interview, the investigation team, working with Crestline Forensic Advisory LLC ("Crestline"), the Audit Committee's forensic accounting advisor retained under the Kovel doctrine, has completed additional forensic analysis concerning an entity known as Clearwater Design Collective Inc. ("CDC"). CDC is a Florida corporation that was filed with the Florida Division of Corporations on June 4, 2021. Based on corporate records and other evidence gathered during the course of this investigation, the investigation team's records reflect that Ms. Prescott is the sole shareholder and registered agent of CDC.
Crestline's forensic analysis has identified sixteen (16) invoices submitted by CDC to VCR between approximately August 2021 and May 2023, totaling Five Hundred Eighty-Seven Thousand Six Hundred Dollars ($587,600). These invoices purport to relate to capital-improvement work at various VCR-managed properties. However, the investigation team has developed evidence suggesting that these invoices correspond to fictitious purchase orders created within VCR's financial systems — specifically, purchase orders that do not appear to be supported by valid work orders, contracts, or evidence that the purported capital-improvement work was actually performed.
Furthermore, Crestline's fund-flow tracing has identified payments directed from VCR operating accounts to bank accounts controlled by CDC, with subsequent disbursements from those CDC accounts to accounts and expenditures that appear to be personal in nature, rather than payments to subcontractors or suppliers for capital-improvement work. The pattern and timing of these disbursements raise significant questions about the legitimacy of the CDC invoices and the ultimate disposition of VCR funds.
The investigation team wishes to question Ms. Prescott about the following topics in connection with this evidence, among others:
(a) Ms. Prescott's ownership of, and involvement with, Clearwater Design Collective Inc., including the circumstances of its formation and its business purpose;
(b) Ms. Prescott's knowledge of, and role in, the process by which CDC invoices were submitted to, and approved within, VCR's accounts-payable system;
(c) The nature of the work purportedly performed by CDC at VCR properties, including whether any such work was actually performed and, if so, the identity of any individuals or subcontractors who performed it;
(d) The disposition of funds received by CDC from VCR, including the purpose and recipients of subsequent disbursements from CDC bank accounts; and
(e) Whether Ms. Prescott disclosed her interest in CDC to VCR management or VHG, and whether any approvals were obtained for related-party transactions, consistent with VHG's Code of Conduct and Related-Party Transaction Policy.
B. Evidence Concerning the Revenue-Recognition Scheme
In addition to the CDC-related evidence, the investigation team's continued document review has yielded further evidence regarding the mechanics of VCR's premature recognition of timeshare-interest deposits as completed-sale revenue. To date, the investigation team has reviewed approximately 347,000 documents from the roughly 1.2 million documents collected from custodial and non-custodial sources in the course of this investigation. That review has produced additional communications and records bearing on Ms. Prescott's involvement in VCR's revenue-recognition practices.
Specifically, the evidence developed to date suggests that Ms. Prescott, in her capacity as Vice President of Finance of VCR, implemented and directed the practice of booking timeshare-interest purchase deposits as completed revenue upon the signing of purchase agreements by prospective timeshare purchasers, rather than upon expiration of the statutory ten (10)-day rescission period provided under Florida Statute § 721.10. Under applicable Florida law, a purchaser of a timeshare interest has the right to cancel the purchase agreement within ten days of execution, and any deposits received during the rescission period are subject to full refund. The premature recognition of such deposits as completed revenue, before the rescission period has lapsed, results in the overstatement of VCR's reported revenue and is inconsistent with applicable accounting standards.
This practice has been identified at two VCR properties:
(i) Coral Dune Resort & Residences, located at 14200 Emerald Coast Parkway, Destin, Florida 32541; and
(ii) Palmetto Bluff Club, located at 3950 Longboat Key Drive, Sarasota, Florida 34228.
Based on the forensic analysis performed by Crestline, the aggregate revenue overstatement attributable to this practice across the four-quarter period from the third quarter of 2022 through the second quarter of 2023 is estimated at Twenty-Six Million Four Hundred Thousand Dollars ($26.4 million), broken down as follows:
The investigation team has identified additional documents and communications — including internal emails, journal-entry support, and financial-system records — that it wishes to discuss with Ms. Prescott regarding her role in directing or implementing this revenue-recognition practice and her awareness that the approach was inconsistent with Accounting Standards Codification ("ASC") Topic 606, Revenue from Contracts with Customers, as well as VHG's stated accounting policies and internal controls. The investigation team also intends to explore Ms. Prescott's interactions with VCR's external auditors and any representations made to those auditors regarding VCR's revenue-recognition methodology.
C. Relationship to Other Evidence
I wish to note for your awareness that the investigation has also examined the activities of two other entities — Gulf Standard Contracting LLC and Suncoast Property Services LLC — in connection with VCR's vendor-payment processes. The investigation team's analysis of these entities, together with CDC, has identified a broader pattern of fictitious-vendor invoicing involving a total of forty-seven (47) purchase orders across the three entities, with aggregate payments totaling approximately One Million Eight Hundred Thirty Thousand Dollars ($1.83 million). The investigation team may have questions for Ms. Prescott about her awareness of, or involvement with, Gulf Standard Contracting LLC and Suncoast Property Services LLC and the broader fictitious-vendor scheme.
In addition, I note that the investigation team's analysis of the evidence discussed above was informed in part by information developed through other witness interviews conducted during the course of this investigation. While I am not in a position to disclose the identities of specific cooperating witnesses or the privileged substance of those interviews, I raise this point so that Ms. Langford and Ms. Prescott are aware that the additional evidence prompting this request derives from multiple independent sources.
III. Proposed Logistics
The Audit Committee requests that the second interview of Ms. Prescott be scheduled at a mutually convenient date during the week of November 6, 2023, or as soon as practicable thereafter. We recognize Ms. Langford's and Ms. Prescott's scheduling constraints and are prepared to work cooperatively to identify a date and time that is feasible for all parties.
We propose that the interview be conducted at Calderwood & Harkness's offices at 200 South Biscayne Boulevard, Suite 4400, Miami, Florida 33131. Alternatively, if in-person attendance is not feasible, we are prepared to conduct the interview by secure video conference using an encrypted platform, consistent with the confidentiality requirements of the investigation. We will coordinate the technical details of any video-conference arrangement in advance to ensure a smooth and secure session.
The investigation team estimates that the second interview will require approximately three to four (3–4) hours to complete, though the actual duration may vary depending on the scope of Ms. Prescott's responses and the need for follow-up questions.
We confirm that Ms. Langford is welcome and expected to attend the interview in her capacity as Ms. Prescott's personal counsel, consistent with the arrangement at the October 11 session. As with the first interview, Upjohn warnings will be administered at the outset of the second interview, in accordance with the protocol established at the prior session. Specifically, the investigation team will remind Ms. Prescott that:
(a) Calderwood & Harkness LLP represents the Audit Committee of the Board of Directors of VHG in connection with this investigation, and does not represent Ms. Prescott individually;
(b) The attorney-client privilege with respect to the interview belongs to VHG and its Audit Committee, not to Ms. Prescott, and that VHG may elect to waive or assert that privilege at its sole discretion, including by disclosing the substance of Ms. Prescott's statements to third parties, including governmental authorities; and
(c) The contents of the interview are confidential and should not be disclosed by Ms. Prescott to third parties outside of her attorney-client relationship with Ms. Langford.
IV. Document Requests Accompanying the Interview
In connection with the second interview, the Audit Committee requests that Ms. Prescott, through counsel, preserve and make available for review by the investigation team any personal records, communications, or financial documents in her possession, custody, or control relating to Clearwater Design Collective Inc. This request includes, but is not limited to:
(a) Articles of incorporation, operating agreements, and any other formation or governance documents for CDC;
(b) Bank account records for any accounts held in the name of, or for the benefit of, CDC, including account statements, deposit records, wire-transfer records, and canceled checks;
(c) Tax returns or other tax-related filings made by or on behalf of CDC;
(d) Invoices, contracts, proposals, or work orders issued by CDC to VCR or any other VHG subsidiary;
(e) Correspondence — whether by email, text message, or other medium — between Ms. Prescott and any VCR or VHG personnel regarding CDC invoices, payments, or purported capital-improvement work; and
(f) Any other documents or records that relate to CDC's business activities, financial transactions, or relationship with VCR.
Please note that this request is in addition to, and does not supersede, the document-preservation obligations communicated to Ms. Prescott in the preservation notices dated July 24, 2023. Ms. Prescott's obligation to preserve all potentially relevant documents, communications, and data, as specified in those notices, remains in full force and effect. The investigation team expects that Ms. Prescott has complied, and will continue to comply, with those obligations.
V. Privilege and Confidentiality
I take this opportunity to remind you of the confidential nature of this investigation and the Audit Committee's expectation that the substance of prior and future interviews — including the topics, questions, and information discussed — not be disclosed to third parties outside of the attorney-client relationship between you and Ms. Prescott. This confidentiality expectation extends to the contents of this letter and any communications between our respective offices regarding the scheduling and conduct of the second interview.
As you are aware, this investigation is being conducted under the direction and at the instruction of the Audit Committee of the Board of Directors of VHG. All communications between Calderwood & Harkness and the Audit Committee, and all work product generated in connection with this investigation, are protected by the attorney-client privilege and the work-product doctrine. The Audit Committee has not authorized the disclosure of any privileged communications or work product to any party, and nothing in this letter should be construed as a waiver of any applicable privilege or protection.
VI. Cooperation Expectations
As noted above, Ms. Prescott remains a current employee of VHG, albeit on administrative leave. VHG expects the continued cooperation of Ms. Prescott with this investigation, consistent with her obligations as an employee under VHG's policies, including the Code of Conduct and the Employee Handbook, both of which require employee cooperation with internal investigations. The investigation team recognizes the seriousness of the matters under review and is committed to conducting the second interview in an efficient and professional manner. It is our hope that the additional questions arising from the evidence described above can be fully addressed through this interview, and we will make every effort to ensure that the process is conducted respectfully and with appropriate consideration for Ms. Prescott's rights.
VII. Closing
We respectfully request that you confirm Ms. Prescott's availability for the second interview during the week of November 6, 2023, or propose alternative dates as soon as practicable, along with your agreement to schedule the interview. Please direct all correspondence and scheduling communications to me at the contact information below:
Howard Quinn Partner, White Collar & Investigations Calderwood & Harkness LLP 200 South Biscayne Boulevard, Suite 4400 Miami, FL 33131 Direct: (305) 728-4112
Email: hquinn@calderwoodharkness.com
Thank you for your attention to this matter. We look forward to hearing from you at your earliest convenience.
Very truly yours,
CALDERWOOD & HARKNESS LLP
By: ________
Howard Quinn Partner, White Collar & Investigations
cc (via email):
Conrad Ashby, Esq., Calderwood & Harkness LLP Liam Donahue, Esq., Calderwood & Harkness LLP Patricia Navarro, Esq., General Counsel, Verimark Hospitality Group Inc.*
*The copy to Ms. Navarro is provided for coordination purposes only and does not affect or diminish the Audit Committee's independent direction of this investigation. Ms. Navarro has not been consulted regarding, and does not exercise authority over, the substance or strategy of the investigation.
PRIVILEGED AND CONFIDENTIAL — ATTORNEY-CLIENT PRIVILEGE / ATTORNEY WORK PRODUCT
Quarter | Estimated Revenue Overstatement
Q3 2022 (July – September 2022) | $4,700,000
Q4 2022 (October – December 2022) | $6,100,000
Q1 2023 (January – March 2023) | $9,800,000
Q2 2023 (April – June 2023) | $5,800,000
Total | $26,400,000

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CALDERWOOD & HARKNESS LLP

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