PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGE / ATTORNEY WORK PRODUCT
MEMORANDUM
December 28, 2023
TO: Audit Committee of the Board of Directors, Verimark Hospitality Group Inc.
Diane Kowalski, Chair Reginald Faulkner, Member Sandra Yeung, Member
FROM: Liam Donahue, Senior Associate, and Steven Hollander, Associate Calderwood & Harkness LLP, White Collar & Investigations Practice
RE: Expense-Reimbursement Irregularity Analysis — Fictitious Vendor Scheme at Verimark Coastal Resorts LLC
MATTER NUMBER: 1021-00008
PREPARED WITH INPUT FROM: Crestline Forensic Advisory LLC (Engagement No. CFA-VHG-2023-0089), Douglas Reinhardt, CPA, CFF (Engagement Partner), and Priya Venkatesh, CPA (Senior Manager)
REVIEWED BY: Howard Quinn, Responsible Partner, and Conrad Ashby, Billing Partner
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I. Executive Summary
This memorandum presents the findings of Calderwood & Harkness LLP's ("Calderwood & Harkness" or "C&H") investigation, conducted in coordination with Crestline Forensic Advisory LLC ("Crestline"), into expense-reimbursement irregularities at Verimark Coastal Resorts LLC ("VCR"), a wholly owned Florida limited liability company subsidiary of Verimark Hospitality Group Inc. ("VHG" or the "Company"). VHG is a Delaware corporation publicly traded on the Nasdaq Stock Market under the ticker symbol VMRK, with its principal executive offices located at 4100 Bayshore Boulevard, Suite 1200, Tampa, Florida 33611. VCR maintains its principal office at 7820 Gulf Breeze Parkway, Suite 400, Destin, Florida 32541, and operates timeshare resort properties along Florida's Gulf Coast.
The investigation covered the period from July 2021 through June 2023, a span of approximately twenty-four (24) months. During this period, three individuals at VCR — Garrett W. Daskine (Division President), Nicole Prescott (Vice President of Finance), and Ryan Mateo Serrano (Controller) — orchestrated a coordinated scheme to divert corporate funds through fictitious vendor invoices submitted as capital-improvement expenditures. The scheme involved the creation and use of three fictitious vendor entities that had no legitimate business operations, no employees, no physical offices, and no genuine contractual relationships with VCR or any other party.
The three fictitious vendor entities are:
1. Gulf Standard Contracting LLC ("GSC") — a Florida limited liability company formed on March 12, 2021, beneficially owned by Garrett W. Daskine;
2. Clearwater Design Collective Inc. ("CDC") — a Florida corporation incorporated on June 4, 2021, solely owned by Nicole Prescott; and
3. Suncoast Property Services LLC ("SPS") — a Florida limited liability company formed on November 18, 2021, beneficially owned by Garrett W. Daskine.
Over the twenty-four-month period, a total of forty-seven (47) fictitious purchase orders were created and processed through VCR's accounts payable system, generating aggregate improper payments of $1,830,000 ($1.83 million). The breakdown by entity is as follows:
The mechanism employed was straightforward in design but effective in execution. VCR Controller Ryan Mateo Serrano created fictitious purchase orders attributed to the three shell entities for purported "capital improvement" work at two VCR resort properties — the Coral Dune Resort & Residences and the Palmetto Bluff Club. Corresponding invoices were generated, referencing plausible property-improvement descriptions such as lobby renovation materials, guest-room furniture, exterior landscaping, and HVAC system upgrades. Payments were processed through VCR's standard accounts payable system and directed to bank accounts controlled by the shell entities. From these accounts, the funds were subsequently disbursed to personal accounts and applied toward personal expenditures of Daskine and Prescott.
Fund-flow analysis conducted by Crestline traced a significant portion of the diverted funds to identifiable personal expenditures of Daskine and Prescott, including residential renovation at Daskine's personal residence at 312 Harbor View Lane, Destin, Florida 32541; boat-slip fees at a Destin-area marina; luxury-goods purchases including high-end jewelry, watches, and apparel; personal credit-card payments; and vehicle lease payments. Serrano received approximately $45,000 in cash payments from Daskine over the course of the scheme as compensation for his operational role.
No legitimate business purpose for any of the forty-seven fictitious purchase orders, or for any of the payments to the three shell entities, has been identified. This memorandum should be read in conjunction with the companion memorandum of the same date addressing revenue-recognition irregularities at VCR, which covers a partially overlapping period and involves certain of the same individuals.
II. Scope and Methodology
A. Scope of Analysis
Calderwood & Harkness was engaged by the Audit Committee of the Board of Directors of Verimark Hospitality Group Inc. to conduct an independent investigation into suspected financial irregularities at VCR. The engagement was authorized pursuant to an engagement letter executed on July 17, 2023, by Audit Committee Chair Diane Kowalski on behalf of the Audit Committee. The investigation was formally opened on July 24, 2023, and document-preservation notices were issued to all relevant custodians and departments on the same date. The preservation notices directed all VCR and VHG personnel to preserve all documents and electronically stored information potentially relevant to the investigation, including but not limited to vendor files, purchase orders, invoices, accounts payable records, bank records, email communications, text messages, and any other communications relating to the three identified vendor entities or to capital-improvement expenditures at the Coral Dune Resort & Residences and Palmetto Bluff Club properties.
Crestline Forensic Advisory LLC was retained as the forensic accounting advisor to the investigation, acting under the Kovel doctrine as an agent of Calderwood & Harkness at the direction of the Audit Committee, pursuant to a separate engagement letter dated July 21, 2023. The Crestline engagement is identified as Engagement No. CFA-VHG-2023-0089. Douglas Reinhardt, CPA, CFF, served as Crestline's Engagement Partner, and Priya Venkatesh, CPA, served as Senior Manager overseeing the forensic accounting analysis.
The focus of this memorandum is specifically on expense-reporting irregularities at VCR involving fictitious vendor invoices submitted as capital-improvement expenditures. The period examined encompasses July 2021 through June 2023 — approximately twenty-four months. The investigation examined transactions involving two VCR properties:
• Coral Dune Resort & Residences, located at 14200 Emerald Coast Parkway, Destin, Florida 32541, a Phase III timeshare development; and
• Palmetto Bluff Club, located at 3950 Longboat Key Drive, Sarasota, Florida 34228, a Phase II timeshare development.
Both properties were undergoing active capital-improvement and development programs during the relevant period, which provided the operational context for the subjects to embed fictitious expenditures within legitimate capital budgets.
B. Methodology
1. Document Collection and Review
The investigation involved the collection and review of a substantial volume of documents and electronically stored information. Approximately 1.2 million documents were collected from eleven (11) identified custodians, of which eight (8) custodians were ultimately collected. Following de-duplication, de-NISTing (removal of system and application files), and application of a TAR 2.0 (Technology-Assisted Review) predictive-coding workflow, the document universe was reduced to approximately 347,000 documents for substantive review. E-discovery services were provided by Triton discovery Solutions Inc., located at 500 Seventh Avenue, 14th Floor, New York, New York 10018. The TAR 2.0 workflow was supervised by senior C&H attorneys and validated through iterative quality-control rounds to ensure adequate recall and precision rates consistent with industry standards.
Document types reviewed included, among others, internal email communications, instant messages, text messages, accounts payable records, purchase order documentation, vendor master files, invoice records, bank statements, wire transfer confirmations, credit-card statements, corporate formation records, tax filings, and board and committee presentations.
2. Forensic Accounting Analysis
Crestline Forensic Advisory conducted a comprehensive forensic accounting analysis encompassing the following workstreams:
• Examination of VCR accounts payable records, including payment registers, check registers, and electronic payment logs;
• Review and analysis of purchase order documentation, including purchase order creation records, approval workflows, and supporting documentation;
• Analysis of VCR vendor master files, including vendor creation dates, vendor contact information, bank routing information, and modification histories;
• Review of bank statements for VCR operating accounts to identify and confirm payments to the three shell entities;
• Analysis of wire transfer records and ACH payment records for all payments to GSC, CDC, and SPS;
• Examination of bank records for the three shell entities, including deposit records, withdrawal records, wire transfer records, and account signatory documentation;
• Review of corporate formation filings with the Florida Secretary of State for all three shell entities;
• Physical site inspections at the Coral Dune Resort & Residences and Palmetto Bluff Club to assess whether any capital-improvement work described in the fictitious invoices was actually performed; and
• Fund-flow analysis tracing the downstream movement of funds from shell entity bank accounts to personal accounts and expenditures of the individual subjects.
3. Witness Interviews
Over the course of the investigation, the Calderwood & Harkness investigation team conducted twenty-two (22) interviews of eighteen (18) unique witnesses. The interviews relevant to the expense-reimbursement irregularities analyzed in this memorandum include the following:
Ryan Mateo Serrano (VCR Controller):
• Session 1: September 27, 2023, with personal counsel Marco A. Ruiz of Coletti & Ruiz PA present. During this initial interview, Serrano provided limited information and declined to answer certain questions regarding his relationship to the shell entities on the advice of counsel.
• Session 2: December 5, 2023, conducted pursuant to a cooperation agreement between VHG and Serrano dated November 15, 2023. During this session, Serrano provided detailed and extensive testimony regarding the mechanics of the fictitious vendor scheme, the roles of Daskine and Prescott, the formation of the shell entities, the creation of fictitious purchase orders and invoices, and the cash payments he received from Daskine. Mr. Ruiz was present during Session 2.
Garrett W. Daskine (Division President, VCR):
• Interviewed on October 4, 2023, with personal counsel James Corwin Merritt of Merritt & Dunleavy LLP present. Daskine denied personal knowledge of the ownership structures of any of the three vendor entities and stated that he relied on the Controller's vendor vetting process. He declined a follow-up interview.
Nicole Prescott (VP of Finance, VCR):
• Session 1: October 11, 2023, with personal counsel Candace O'Brien Langford of Langford Pace LLP present. Prescott provided limited responses regarding her relationship with CDC and stated she would need to consult further with counsel.
• Session 2: November 8, 2023, with Ms. Langford present. In this session, Prescott acknowledged that she was the sole shareholder of CDC but stated she believed the invoicing arrangement was "supplemental compensation" that had been approved by Daskine. She denied knowledge of the GSC and SPS arrangements.
Thomas Rhett Griffith (Chief Financial Officer, VHG):
• Interviewed on August 22, 2023. Griffith stated that he relied on VCR's division-level controls for vendor management and accounts payable processing. He described the corporate-level oversight as focused on budget-level reporting and did not include independent verification of individual vendor payments at the subsidiary level.
Margaret "Meg" Calder (Chief Executive Officer, VHG):
• Interviewed on August 29, 2023. Calder stated that she had no prior awareness of the fictitious vendor entities and that she relied on the division presidents and the CFO's office for operational financial management. She expressed concern regarding the adequacy of the Company's internal controls.
4. Corporate Records Search
The investigation team conducted searches of Florida Secretary of State filings, including Articles of Organization and Articles of Incorporation, annual reports, and registered agent records for all three shell entities. Additionally, Uniform Commercial Code (UCC) lien filings and registered agent records were reviewed. These searches confirmed the formation dates, registered agents, and organizational structures of GSC, CDC, and SPS.
5. Bank Record Analysis
Bank records for the three shell entities were obtained through a combination of subpoena and voluntary production. The records encompassed account opening documentation (including signatory cards), monthly bank statements, deposit detail, cancelled checks, wire transfer confirmations, and ACH payment records. These records were analyzed by Crestline to trace the flow of funds from VCR to the shell entities and from the shell entities to personal accounts and expenditures.
C. Privilege and Confidentiality
This memorandum constitutes attorney work product prepared by Calderwood & Harkness LLP in anticipation of litigation and in connection with the provision of legal advice to the Audit Committee of VHG. The memorandum is protected by the attorney-client privilege and the work-product doctrine. All work performed by Crestline Forensic Advisory LLC in connection with this investigation was performed under the Kovel doctrine as an agent of Calderwood & Harkness, retained at the direction of counsel to assist in the rendition of legal services. Accordingly, Crestline's analyses, work papers, and communications with Calderwood & Harkness are likewise protected by the attorney-client privilege and work-product doctrine.
Distribution of this memorandum is limited to the members of the Audit Committee — Diane Kowalski (Chair), Reginald Faulkner, and Sandra Yeung — and to such other persons as the Audit Committee may expressly authorize in writing after consultation with Calderwood & Harkness. Any broader dissemination may result in waiver of applicable privileges.
III. Identification and Formation of Shell Entities
The investigation identified three entities that served as the vehicles through which the fictitious vendor scheme was executed. None of the three entities had genuine business operations, employees, physical offices, or any commercial purpose other than receiving diverted funds from VCR. The formation and characteristics of each entity are set forth below.
A. Gulf Standard Contracting LLC ("GSC")
Gulf Standard Contracting LLC is a Florida limited liability company that was formed on March 12, 2021, by filing Articles of Organization with the Florida Secretary of State, Division of Corporations. The entity was assigned Florida Document Number L21000XXXXXX. Ryan Mateo Serrano, VCR's Controller, was listed as the registered agent for the entity. As of the date of formation, the entity listed a mailing address that the investigation determined to be a commercial mail-receiving address — i.e., a private mailbox at a postal and shipping services retail location. No evidence was identified of any actual office space, warehouse, or place of business associated with GSC.
According to Serrano's cooperation testimony provided during his December 5, 2023 interview, Garrett W. Daskine directed the formation of GSC and was the beneficial owner of the entity. The Articles of Organization listed a nominee member, but Serrano confirmed that Daskine was the sole economic beneficiary and that the nominee arrangement was used to obscure Daskine's connection to the entity. Serrano stated that Daskine provided him with the instructions and funds necessary to complete the formation filings and that Daskine selected the entity name to convey an impression of legitimacy as a construction and renovation contractor.
GSC's purported business was capital-improvement construction and renovation services for hospitality properties. However, the investigation found no evidence of any legitimate business operations. GSC had no employees, no payroll records, no workers' compensation insurance, no general liability insurance, no subcontractor agreements, and no evidence of any actual construction or renovation work performed for any client, including VCR. Critically, a search of the Florida Department of Business and Professional Regulation records confirmed that no Florida construction contractor license was on file for GSC or for any individual associated with GSC. Under Florida law, a contractor license is required for construction work exceeding certain monetary thresholds — a requirement that would have applied to the scope of work described in the fictitious invoices submitted by GSC.
B. Clearwater Design Collective Inc. ("CDC")
Clearwater Design Collective Inc. is a Florida corporation that was incorporated on June 4, 2021, by filing Articles of Incorporation with the Florida Secretary of State, Division of Corporations. The entity was assigned Florida Document Number P21000XXXXXX. As with GSC, Ryan Mateo Serrano served as the registered agent for CDC.
The investigation determined that Nicole Prescott, VCR's Vice President of Finance, was the sole shareholder of CDC. Unlike GSC, where Daskine used a nominee arrangement, Prescott's ownership of CDC was direct. In her second interview on November 8, 2023, Prescott acknowledged that she was the sole shareholder of CDC, although she characterized the invoicing arrangement as "supplemental compensation" that she understood had been approved by Daskine.
CDC's purported business was interior design and furnishing services for hospitality properties. However, the investigation identified no evidence of any actual employees, design projects, subcontractors, or independent contracting relationships outside of the invoices submitted to VCR. No professional interior design licenses were identified for CDC or for any individual associated with the entity. CDC maintained a mailing address that, like GSC, was a commercial mail-receiving address. No evidence of any actual office, studio, showroom, or workspace was identified.
C. Suncoast Property Services LLC ("SPS")
Suncoast Property Services LLC is a Florida limited liability company that was formed on November 18, 2021, by filing Articles of Organization with the Florida Secretary of State, Division of Corporations. Unlike GSC and CDC, where Serrano personally served as registered agent, SPS designated Panhandle Agent Services Inc., a commercial registered-agent service located in Tallahassee, Florida, as its registered agent. This distinction is notable and, according to Serrano's cooperation testimony, was intentional. Serrano stated during his December 5, 2023 interview that Daskine wanted to "diversify the apparent vendor pool" and reduce the risk of internal scrutiny by eliminating the visible connection between the registered agent for SPS and the other two entities. The use of a commercial registered-agent service for SPS was intended to create additional distance between the shell entities.
Garrett W. Daskine was the sole member and beneficial owner of SPS. The entity's purported business was property maintenance, landscaping, and exterior services. As with the other two entities, the investigation found no evidence of any actual employees, equipment, vehicles, subcontractor arrangements, insurance policies, or any other indicia of legitimate business operations. SPS maintained no physical office, and its mailing address was, again, a commercial mail-receiving address.
Serrano's testimony regarding the timing of SPS's formation is significant. He stated that SPS was formed approximately eight months after GSC and five months after CDC because Daskine wanted to expand the number of apparent vendors to make the pattern of invoicing appear more organic and to reduce the concentration of payments to any single entity. This deliberate expansion of the vendor pool reflects an awareness of detection risk and a conscious effort to structure the scheme to evade internal controls.
D. Summary of Entity Structure
The following table summarizes the key attributes of the three shell entities:
All three entities were created between March 2021 and November 2021 — a span of approximately eight months — and all three predated the beginning of the investigated expense period in July 2021. The sequential formation of the entities, coupled with the absence of any legitimate business purpose, strongly supports the conclusion that the entities were created specifically to serve as conduits for the fictitious vendor scheme.
Bank accounts were opened at separate financial institutions for each entity. The investigation confirmed that all signatory authority on these accounts was held by Daskine, Prescott, or Serrano. The use of separate banks for each entity is consistent with an effort to avoid detection through consolidated banking records and to maintain the appearance of independent, unrelated vendors.
IV. The Fictitious Purchase Order Scheme
A. Overview of the Mechanism
The fictitious vendor scheme operated through VCR's standard accounts payable process, exploiting the positions and authority of the three subjects within VCR's organizational hierarchy. The mechanics of the scheme, as confirmed through documentary evidence and Serrano's cooperation testimony, operated as follows:
1. Purchase Order Creation. VCR Controller Ryan Mateo Serrano created fictitious purchase orders within VCR's accounts payable system. Each purchase order referenced one of the three shell entities as the vendor and described purported "capital improvement" work at one of the two VCR resort properties — the Coral Dune Resort & Residences or the Palmetto Bluff Club. The descriptions on the purchase orders were crafted to be plausible in the context of VCR's ongoing Phase III development at Coral Dune and Phase II development at Palmetto Bluff. Typical descriptions included lobby renovation materials, guest-room furniture procurement, exterior landscaping, pool-area maintenance, exterior façade repairs, HVAC system components, and common-area décor.
2. Approval of Purchase Orders. Purchase orders were designed to fall within the appropriate approval authority based on the dollar amount. For purchase orders below $50,000, Serrano himself had sufficient approval authority as Controller. For purchase orders between $50,000 and $100,000, Prescott approved the purchase order in her capacity as VP of Finance. For purchase orders exceeding $100,000, Daskine approved the purchase order in his capacity as Division President. In practice, the vast majority of purchase orders were structured to fall below the $50,000 threshold, enabling Serrano to approve them without requiring additional authorization. However, certain larger invoices were routed to Prescott or Daskine for approval, with those individuals acting as knowing participants in the scheme.
3. Invoice Submission. After a purchase order was created and approved, a corresponding invoice was generated in the name of the relevant shell entity. The invoices bore professional formatting, including entity names, addresses, invoice numbers, descriptions of purported services or goods, and payment terms. These invoices were submitted against the open purchase orders through VCR's accounts payable system.
4. Payment Processing. Invoices were matched against approved purchase orders and processed through VCR's standard accounts payable payment cycle. Payments were made by wire transfer or ACH to the bank accounts of the respective shell entities. No additional verification of goods receipt, services completion, or vendor legitimacy was required under VCR's accounts payable procedures — a critical internal-controls deficiency discussed further in Section VIII.
5. Classification in VCR's Books. All expenditures were classified in VCR's general ledger as capital improvements. They were embedded within the legitimate capital-expenditure budgets for the Coral Dune Resort & Residences (Phase III timeshare units) and the Palmetto Bluff Club (Phase II timeshare units). Because both properties were undergoing active development and capital-improvement programs during the relevant period, the fictitious expenditures did not create conspicuous variances when viewed in the context of overall capital budgets.
B. Internal Controls Circumvented
The fictitious vendor scheme exploited several significant weaknesses in VCR's internal controls, which are discussed in detail in Section VIII of this memorandum. In summary, the key control failures that enabled the scheme include:
Vendor Onboarding. VCR's vendor onboarding process permitted the Controller — Serrano — to add new vendors to the vendor master file without independent verification by a second party. There was no requirement for contractor license verification, Dunmore Enterprises number validation, independent reference checks, or any other form of vendor due diligence beyond the completion of a W-9 form. The W-9 forms on file for the three shell entities contained the shell-entity names and employer identification numbers (EINs) but were never independently verified against IRS records or other authoritative sources.
Purchase Order Authorization Thresholds. The purchase order authorization thresholds at VCR were structured such that the three subjects of the investigation — Serrano (Controller), Prescott (VP of Finance), and Daskine (Division President) — collectively controlled the entire range of approval authority. Purchase orders below $50,000 required only Controller-level approval; purchase orders between $50,000 and $100,000 required VP of Finance approval; and purchase orders above $100,000 required Division President approval. Because all three individuals were active participants in the scheme, the tiered approval structure provided no effective check. Moreover, there was no requirement for dual signatures on any purchase order, nor was there any requirement for independent verification that goods had been received or services had been performed.
Absence of Goods-Receipt Verification. VCR did not maintain a process for independent confirmation that goods described in purchase orders and invoices had been delivered to the properties, or that services described had been performed. There was no three-way matching process (comparing purchase order, invoice, and receiving report) in place for the capital-improvement expenditure category.
Capital-Expenditure Budget Size. VCR's capital-improvement budgets during the relevant period were sufficiently large — reflecting the ongoing Phase III and Phase II development programs — that individual invoices in the range of $10,000 to $94,500 did not trigger outlier detection through variance analysis. The fictitious invoices were individually small enough relative to total capital expenditures to remain within normal operating parameters when reviewed at the budget level.
Corporate-Level Oversight. VHG corporate-level accounts payable oversight relied entirely on VCR's division-level controls. There was no separate corporate verification of VCR vendors, no corporate-level review of vendor master file additions, and no independent corporate audit of VCR vendor payments during the period under investigation.
C. Chronological Pattern of Invoicing
The chronological pattern of fictitious invoicing reveals a scheme that began modestly and accelerated significantly over time. The timeline is as follows:
• July 2021: The first identified fictitious invoice was submitted by GSC, approximately four months after GSC's formation in March 2021. This initial invoice was relatively modest in amount and was processed without incident through VCR's accounts payable system.
• August 2021: CDC began submitting invoices, approximately two months after its June 2021 incorporation. The early CDC invoices were similarly modest in size.
• January 2022: SPS began submitting invoices, approximately two months after its November 18, 2021 formation. The introduction of SPS as a third vendor entity expanded the apparent vendor pool and permitted further diversification of fictitious expenditure descriptions.
• July 2021 – June 2022 (First Twelve Months): Approximately ten (10) fictitious invoices were submitted across the three entities during the first year of the scheme. The pace was measured, and individual invoice amounts tended to be at the lower end of the observed range. This pattern is consistent with a "testing" phase in which the subjects assessed the risk of detection before increasing the volume and magnitude of the scheme.
• July 2022 – June 2023 (Second Twelve Months): Approximately thirty-seven (37) fictitious invoices were submitted during the second year — nearly a four-fold increase over the first year. Individual invoice amounts also increased, with several invoices approaching or exceeding $50,000. The acceleration in the second year coincided temporally with the period of revenue-recognition irregularities analyzed in the companion memorandum (Q3 2022 through Q2 2023), suggesting either increased confidence by the subjects following a year of undetected activity, increased boldness, or both.
• June 2023: The last identified fictitious invoice was submitted approximately one month before the investigation was opened in July 2023.
The accelerating trajectory of the scheme is a pattern commonly observed in occupational fraud — early success in avoiding detection emboldens the perpetrators to increase both the frequency and magnitude of fraudulent transactions over time.
V. Quantitative Analysis by Shell Entity
A. Gulf Standard Contracting LLC (GSC)
GSC was the most heavily utilized of the three shell entities and accounted for the largest share of the total diverted funds. The quantitative profile of GSC invoicing is as follows:
• Total invoices submitted and paid: 19
• Total payments: $812,400
• Average invoice amount: Approximately $42,758
• Largest single invoice: $94,500 — Invoice No. GSC-2023-007, dated February 14, 2023, for "lobby renovation materials — Coral Dune Phase III"
• Smallest single invoice: Approximately $12,300
The largest GSC invoice — GSC-2023-007, in the amount of $94,500 — warrants particular discussion. This invoice was approved by Garrett W. Daskine in his capacity as Division President, as the amount exceeded the $50,000 threshold requiring his approval. The invoice described the purchase of "lobby renovation materials" for the Coral Dune Phase III development. However, a physical site inspection conducted by Crestline personnel at the Coral Dune Resort & Residences confirmed that no lobby renovation activity occurred at the property during the period corresponding to this invoice. Property-management records, maintenance logs, and contractor sign-in sheets at the Coral Dune property contain no reference to any lobby renovation project during the relevant time frame. Daskine's approval of this invoice — for a fictitious project at a property he oversaw, payable to an entity he beneficially owned — is among the most direct evidence of his knowing participation in the scheme.
All payments to GSC were directed to a bank account at which Garrett W. Daskine was the sole authorized signatory. Purported work descriptions on GSC invoices included lobby renovation, HVAC system components, and exterior façade repairs — all ostensibly performed at the Coral Dune Resort & Residences.
B. Clearwater Design Collective Inc. (CDC)
CDC was the second-largest source of fictitious invoices in terms of total dollar volume. The quantitative profile of CDC invoicing is as follows:
• Total invoices submitted and paid: 16
• Total payments: $587,600
• Average invoice amount: Approximately $36,725
• Largest single invoice: Approximately $67,200
• Smallest single invoice: Approximately $14,800
All payments to CDC were directed to a bank account at which Nicole Prescott was the sole authorized signatory. The purported work described on CDC invoices included interior design consulting, guest-room furniture procurement, and common-area décor. Unlike GSC and SPS, which were concentrated at a single property, CDC invoices were split across both the Coral Dune Resort & Residences and the Palmetto Bluff Club, further diversifying the appearance of the invoiced work.
Significantly, the investigation found no delivery receipts, shipping documentation, freight bills, installation records, or work-completion records corresponding to any CDC invoice. For invoices purporting to describe furniture procurement, there were no records of any furniture being ordered from any supplier, shipped to any property, received at any loading dock, or installed in any guest room or common area. The complete absence of any corroborating logistics or delivery documentation confirms the fictitious nature of all CDC invoices.
C. Suncoast Property Services LLC (SPS)
SPS accounted for the smallest share of fictitious invoices, reflecting its later formation and shorter period of active invoicing. The quantitative profile of SPS invoicing is as follows:
• Total invoices submitted and paid: 12
• Total payments: $430,000
• Average invoice amount: Approximately $35,833
• Largest single invoice: Approximately $58,000
• Smallest single invoice: Approximately $15,500
Payments to SPS were directed to a bank account at which Garrett W. Daskine was the primary authorized signatory and Ryan Mateo Serrano was a secondary signatory. Serrano's signatory authority on the SPS account is the most direct financial link between Serrano and the shell entity bank accounts, though as discussed in Section VI.E below, Serrano's financial benefit from the scheme was derived primarily from cash payments rather than from direct bank-account access.
The purported work described on SPS invoices included landscaping, exterior painting, and pool-area maintenance — primarily at the Palmetto Bluff Club property. No contracts, work orders, scope-of-work documents, or evidence of any actual services performed were identified for any SPS invoice.
D. Aggregate Summary Table
The following table summarizes the total fictitious invoicing across all three shell entities:
As reflected above, Daskine was the beneficial owner of entities (GSC and SPS) accounting for $1,242,400 (67.9%) of the total diverted funds, while Prescott was the beneficial owner of an entity (CDC) accounting for $587,600 (32.1%) of the total.
E. Verification by Crestline Forensic Advisory
Crestline Forensic Advisory performed independent verification of the fictitious nature of the invoices and the integrity of the quantitative analysis. Crestline's verification workstreams included:
1. Purchase Order Cross-Referencing. Crestline matched all 47 purchase order numbers against VCR's capital-improvement project files, including project budgets, project schedules, scope-of-work documents, and contractor files. No corresponding project documentation was found for any of the 47 purchase orders. The purchase order numbers assigned to the fictitious transactions did not appear in any legitimate project tracking system.
2. Deposit Matching. Crestline cross-referenced the amounts of all 47 invoices against bank deposit records for the three shell entities. A 100% match was confirmed — every invoiced amount was deposited into the corresponding entity's bank account, with no partial payments, adjustments, or discrepancies.
3. Property-Management Record Review. Crestline reviewed VCR's property-management records for both the Coral Dune Resort & Residences and the Palmetto Bluff Club, including maintenance logs, contractor sign-in sheets, property-management software records, and capital-improvement tracking reports. No evidence of work performed by GSC, CDC, or SPS was found in any property-management system for either property.
4. Form 1099 Analysis. Crestline confirmed that VCR did not issue IRS Form 1099-MISC or Form 1099-NEC for payments to any of the three entities during the relevant period, despite the fact that aggregate payments to each entity far exceeded the $600 reporting threshold. The failure to issue Form 1099s is itself an irregularity; however, the investigation determined that this failure resulted from the same internal-control weakness that permitted the scheme — namely, Serrano's ability to control the vendor master file and the absence of independent oversight of the 1099-reporting process.
VI. Fund-Flow Analysis and Personal Expenditure Tracing
A. Methodology
A critical component of the investigation was the tracing of funds from VCR's accounts payable disbursements through the shell entity bank accounts and into the personal expenditures and accounts of the individual subjects. This analysis was conducted by Crestline Forensic Advisory using bank records, credit-card statements, wire transfer records, and payee identification for downstream disbursements from the shell entity accounts.
The fund-flow analysis employed standard forensic accounting techniques, including specific-item tracing (matching specific deposits to specific downstream disbursements), aggregate analysis (comparing total inflows and outflows across accounts), and net-worth analysis (comparing known income sources to identified expenditures and asset acquisitions). The results reported below reflect specific-item tracing — i.e., amounts that have been traced to identifiable personal expenditures or transfers with a reasonable degree of certainty. Amounts categorized as requiring "further tracing" represent transfers to personal or investment accounts where the ultimate use of funds has not yet been determined with specificity.
B. Funds Attributed to Garrett W. Daskine
Funds from the GSC and SPS bank accounts — the two entities beneficially owned by Daskine — were traced to the following categories of personal expenditures:
• Residential Renovation. Payments to legitimate contractors for kitchen and bathroom remodeling at Daskine's personal residence, located at 312 Harbor View Lane, Destin, Florida 32541, totaling approximately $340,000 over the investigation period. The contractors performing this work were identified and verified as legitimate businesses with no connection to the fictitious vendor scheme. Payments to these contractors originated from the GSC and SPS bank accounts.
• Boat-Slip Fees. Payments for boat-slip rental and related marina fees at a Destin-area marina, totaling approximately $78,000 over the twenty-four-month period. These payments were traced from the GSC bank account.
• Luxury-Goods Purchases. Purchases of high-end jewelry, watches, and designer apparel, totaling approximately $125,000 in traceable transactions. These purchases were made via debit-card transactions and wire transfers from the GSC and SPS accounts to identified luxury retailers.
• Personal Credit-Card Payments. Payments applied to Daskine's personal credit-card accounts totaling approximately $290,000 over the investigation period. These transfers were made from the GSC and SPS bank accounts directly to Daskine's credit-card issuers.
• Other Transfers. The remaining approximately $409,400 was transferred from the GSC and SPS bank accounts to other personal bank accounts or investment accounts held by Daskine. While these transfers have been confirmed to be to accounts in Daskine's name, the ultimate use of these funds has not been traced to specific expenditures. Further tracing of these amounts may be warranted if the Audit Committee determines that a more complete accounting is necessary for purposes of a civil recovery action or regulatory response.
In total, approximately $833,000 in specific personal expenditures of Daskine have been traced from the GSC and SPS bank accounts, with an additional $409,400 transferred to personal accounts requiring further tracing. The combined total of $1,242,400 matches the total of all payments to GSC ($812,400) and SPS ($430,000), confirming that 100% of the funds paid to the two Daskine-controlled entities were ultimately for Daskine's personal benefit.
C. Funds Attributed to Nicole Prescott
Funds from the CDC bank account — the entity solely owned by Prescott — were traced to the following categories of personal expenditures:
• Personal Credit-Card Payments. Approximately $215,000 was applied to Prescott's personal credit-card balances through wire transfers and ACH payments from the CDC bank account to Prescott's credit-card issuers.
• Luxury-Goods Purchases. Approximately $88,000 in traceable purchases of luxury goods, including designer apparel, accessories, and related items.
• Vehicle Lease Payments and Related Costs. Approximately $62,000 in payments for personal vehicle lease obligations and associated insurance and maintenance costs.
• Other Transfers. The remaining approximately $222,600 was transferred from the CDC bank account to personal bank accounts held by Prescott. As with Daskine, the ultimate use of these funds has not been traced to specific expenditures, and further tracing may be warranted.
In total, approximately $365,000 in specific personal expenditures of Prescott have been traced from the CDC bank account, with an additional $222,600 transferred to personal accounts requiring further tracing. The combined total of $587,600 matches the total of all payments to CDC, confirming that 100% of the funds paid to Prescott's entity were ultimately for her personal benefit.
D. Fund-Flow Summary
The following table summarizes the fund-flow analysis:
No evidence was identified that any portion of the $1,830,000 in funds disbursed to the three shell entities was used for any legitimate business purpose of VCR or of any of the three shell entities.
E. Ryan Mateo Serrano's Financial Benefit
Ryan Mateo Serrano's financial benefit from the scheme was distinct from that of Daskine and Prescott. Serrano was not a beneficial owner of any of the three shell entities; rather, he served as the registered agent for GSC and CDC and as a secondary signatory on the SPS bank account. His role was operational — he created the fictitious purchase orders, processed the invoices, and maintained the vendor master file.
In his cooperation interviews (September 27, 2023 and December 5, 2023, conducted pursuant to the cooperation agreement executed November 15, 2023), Serrano stated that he received periodic cash payments from Daskine totaling approximately $45,000 over the twenty-four-month period as compensation for his role in the scheme. These cash payments were not made through any of the shell entity bank accounts; rather, they were paid directly by Daskine in cash on an irregular basis, typically in amounts ranging from $2,000 to $5,000 per payment. Serrano's account of these cash payments is consistent with the pattern of unexplained cash withdrawals from the GSC bank account that Crestline identified during its fund-flow analysis.
No direct shell-entity bank-account disbursements to Serrano — other than the aforementioned cash payments channeled through Daskine — were identified.
VII. Role of Individual Subjects
A. Garrett W. Daskine (Division President, VCR)
Garrett W. Daskine served as Division President of Verimark Coastal Resorts LLC. A seventeen-year veteran of VHG, Daskine held the most senior position within VCR's management structure and was responsible for the overall operations and financial performance of the VCR division, including oversight of the Coral Dune Resort & Residences and Palmetto Bluff Club properties.
The evidence establishes that Daskine conceived, directed, and was the primary financial beneficiary of the fictitious vendor scheme. According to Serrano's cooperation testimony, Daskine initiated the scheme by directing Serrano to form GSC in early 2021 and instructing Serrano on the mechanics by which fictitious purchase orders and invoices would be created and processed through VCR's accounts payable system. Daskine subsequently directed the formation of SPS in late 2021 to diversify the apparent vendor pool.
Daskine was the beneficial owner of two of the three shell entities — GSC and SPS — which together received $1,242,400 (67.9%) of the total diverted funds. As Division President, Daskine held the authority to approve purchase orders exceeding $100,000, and he personally approved purchase orders in the $50,000 to $100,000 range, including the single largest fictitious invoice — GSC-2023-007, in the amount of $94,500, for non-existent "lobby renovation materials" at the Coral Dune property. The fund-flow analysis confirmed that approximately $833,000 in identifiable personal expenditures — including residential renovation, boat-slip fees, luxury-goods purchases, and personal credit-card payments — were traced from the GSC and SPS bank accounts.
Daskine was interviewed on October 4, 2023, with personal counsel James Corwin Merritt of Merritt & Dunleavy LLP present. During this interview, Daskine denied personal knowledge of the ownership structures of any of the three vendor entities and stated that he relied on VCR's Controller and the vendor vetting process to ensure that vendors in the master file were legitimate. When questioned about specific invoices he had approved, Daskine stated that he reviewed capital-improvement purchase orders as part of his regular duties and that he had no reason to question the legitimacy of the vendors. Daskine declined a follow-up interview through counsel.
Daskine was placed on administrative leave effective August 7, 2023, shortly after the investigation was opened. His employment was terminated for cause on December 18, 2023, following the Audit Committee's review of the preliminary investigation findings.
B. Nicole Prescott (VP of Finance, VCR)
Nicole Prescott served as Vice President of Finance for Verimark Coastal Resorts LLC. A nine-year VHG veteran, Prescott was responsible for VCR's financial reporting, budgeting, and internal financial controls, and she held approval authority for purchase orders in the $50,000 to $100,000 range.
The evidence establishes that Prescott was a knowing participant in the scheme and a direct beneficiary. Prescott was the sole shareholder of Clearwater Design Collective Inc. (CDC), which received $587,600 (32.1%) of the total diverted funds. As VP of Finance, Prescott approved purchase orders within her authority range, and she was in a position to observe and facilitate the processing of invoices through VCR's accounts payable system. The fund-flow analysis confirmed that approximately $365,000 in identifiable personal expenditures — including personal credit-card payments, luxury-goods purchases, and vehicle lease payments — were traced from the CDC bank account.
Prescott was interviewed on two occasions — October 11, 2023 (Session 1) and November 8, 2023 (Session 2) — with personal counsel Candace O'Brien Langford of Langford Pace LLP present at both sessions. In Session 1, Prescott provided limited responses regarding her relationship with CDC and stated she would need to consult further with counsel before discussing the matter in detail. In Session 2, Prescott acknowledged that she was the sole shareholder of CDC but offered a characterization of the invoicing arrangement that the evidence does not support. Specifically, Prescott stated that she believed the invoicing arrangement was "supplemental compensation" that had been approved by Daskine. She denied knowledge of the GSC and SPS arrangements and denied awareness that Daskine was the beneficial owner of those entities.
Prescott's characterization of the CDC payments as "supplemental compensation" is not supported by the evidence. No corporate authorization for supplemental compensation through a personally owned entity was identified. No board resolution, compensation committee approval, employment agreement amendment, or other corporate governance document authorized any such arrangement. Moreover, the manner in which the CDC payments were structured — through fictitious invoices for non-existent design services, classified as capital expenditures in VCR's books — is inconsistent with any legitimate compensation arrangement and instead reflects deliberate concealment.
Prescott was placed on administrative leave effective August 7, 2023. Her employment was terminated for cause on December 18, 2023.
C. Ryan Mateo Serrano (Controller, VCR)
Ryan Mateo Serrano served as Controller for Verimark Coastal Resorts LLC. A five-year VHG veteran, Serrano was responsible for VCR's day-to-day accounting operations, including maintenance of the general ledger, accounts payable processing, and the vendor master file.
The evidence establishes that Serrano was the operational implementer of the scheme. Serrano created all forty-seven fictitious purchase orders, added the three shell entities to VCR's vendor master file, and processed the corresponding invoices through the accounts payable system. He served as the registered agent for GSC and CDC and as a secondary signatory on the SPS bank account. According to his cooperation testimony, Serrano acted at Daskine's direction in forming the shell entities and creating the fictitious purchase orders. Serrano received approximately $45,000 in cash payments from Daskine over the course of the scheme as compensation for his role.
Serrano was initially interviewed on September 27, 2023, with personal counsel Marco A. Ruiz of Coletti & Ruiz PA present. During this initial interview, Serrano provided limited information and declined to answer certain questions regarding his relationship to the shell entities on the advice of counsel. Following the execution of a cooperation agreement between VHG and Serrano dated November 15, 2023, Serrano participated in a second interview on December 5, 2023, during which he provided detailed and extensive testimony regarding the mechanics of the scheme. Serrano's cooperation testimony has been corroborated by documentary evidence, including the corporate formation records, bank records, email communications, and the accounts payable records.
The terms of the cooperation agreement provided that Serrano would provide truthful and complete testimony regarding the fictitious vendor scheme and would cooperate with any regulatory inquiries. In exchange, VHG agreed to certain terms regarding the manner of his separation from employment. Serrano was placed on administrative leave effective August 7, 2023. His employment was terminated on a non-cause basis on December 20, 2023, pursuant to the terms of the cooperation agreement. It is important to note that the cooperation agreement is between VHG and Serrano only and does not bind any government authority, including the SEC or the Department of Justice.
VIII. Internal Controls Deficiencies
The fictitious vendor scheme exploited multiple deficiencies in VCR's internal controls. These deficiencies allowed the scheme to operate without detection for approximately twenty-four months and to generate $1,830,000 in improper payments. The principal control deficiencies identified through the investigation are set forth below.
A. Vendor Management
VCR lacked an independent vendor validation process at the time of the scheme. The Controller — Serrano — had the ability to add new vendors to the vendor master file without any second-party verification or independent approval. There was no segregation of duties in the vendor onboarding process; the same individual who created purchase orders and processed invoices also controlled the vendor master file.
Specifically, VCR did not require any of the following as conditions for adding a new vendor:
• Independent verification of contractor or professional licenses;
• Verification of Dunmore Enterprises (D-U-N-S) number;
• Independent reference checks or verification of prior work history;
• Confirmation of physical business address (beyond the address self-reported by the vendor);
• Verification of W-9 information against IRS records; or
• Management-level approval for the addition of new vendors to the master file.