1021-00008 · Client 1021 · Witness Interviews

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PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGE / ATTORNEY WORK PRODUCT

MEMORANDUM OF INTERVIEW

TO: File — Investigation of Verimark Coastal Resorts LLC (Matter No. 1021-00008)

FROM: Liam Donahue, Senior Associate, Calderwood & Harkness LLP Steven Hollander, Associate, Calderwood & Harkness LLP

DATE: November 8, 2023

RE: Second Interview of Nicole Prescott, Vice President of Finance, Verimark Coastal Resorts LLC

Interview Date: November 8, 2023

Interview Time: 10:00 a.m. – 1:45 p.m. (approximately 3 hours 45 minutes, with one 15-minute break)

Interview Location: Offices of Calderwood & Harkness LLP, 200 South Biscayne Boulevard, Suite 4400, Miami, FL 33131

I. Attendees

The following individuals were present for the interview:

Interviewers:

• Howard Quinn, Partner (Responsible Partner), Calderwood & Harkness LLP

• Liam Donahue, Senior Associate (Lead Associate), Calderwood & Harkness LLP

Note-Taker:

• Steven Hollander, Associate (Working Associate), Calderwood & Harkness LLP

Interviewee:

• Nicole Prescott, Vice President of Finance, Verimark Coastal Resorts LLC ("VCR"). Ms. Prescott has been on administrative leave since August 7, 2023.

Counsel for Interviewee:

• Candace O'Brien Langford, Langford Pace LLP, Tallahassee, FL

Others Present: None.

II. Upjohn Warnings and Preliminary Matters

At the outset of the interview, Howard Quinn re-administered the standard Upjohn warning to Ms. Prescott, consistent with the script dated August 14, 2023 (a copy of which is maintained in the investigation files). The following acknowledgments were obtained from Ms. Prescott:

Ms. Prescott confirmed that she understood that Calderwood & Harkness LLP represents the Audit Committee of the Board of Directors of Verimark Hospitality Group Inc. ("VHG"), and not any individual officer, director, or employee of VHG or any of its subsidiaries, including VCR. Ms. Prescott specifically confirmed that she understood Calderwood & Harkness LLP does not represent her personally in connection with this investigation or any related matter.

Ms. Prescott confirmed that she understood that the attorney-client privilege attaching to this interview and its contents belongs to VHG and its Audit Committee, and not to Ms. Prescott individually. Ms. Prescott confirmed that she understood this means she cannot assert the privilege over the contents of this interview on her own behalf.

Ms. Prescott confirmed that she understood that the Audit Committee, in its sole discretion, may choose to waive the attorney-client privilege and disclose the contents of the interview, including to third parties such as the Securities and Exchange Commission, the United States Department of Justice, or other government regulators or law-enforcement agencies.

Ms. Prescott confirmed that she understood the interview was confidential and that she should not discuss the substance of the interview, the questions asked, or her responses with any other VHG employees, officers, directors, or third parties, other than her own personal counsel, Ms. Langford.

Ms. Langford acknowledged on the record that these same Upjohn warnings had been administered to Ms. Prescott at the commencement of the first interview session on October 11, 2023, and that Ms. Prescott had understood them at that time and continued to understand them for purposes of this second session.

Mr. Quinn also referenced the October 30, 2023 letter from Mr. Quinn to Langford Pace LLP, in which Calderwood & Harkness requested this follow-up interview session and identified the general subject areas to be addressed. Ms. Langford confirmed receipt of the October 30, 2023 letter and stated that she and Ms. Prescott had discussed the letter and the anticipated topics in advance of the session.

III. Purpose and Scope of Second Interview

Mr. Quinn explained to Ms. Prescott that the purpose of this second interview session was to explore in greater detail three principal areas of inquiry:

(1) Ms. Prescott's ownership of and involvement with Clearwater Design Collective Inc. ("CDC"), including the formation, operation, invoicing practices, and financial activities of that entity and its relationship to other entities identified during the investigation;

(2) The specific mechanics of the revenue-recognition overstatement at VCR, including the process by which timeshare-interest deposits were recorded as completed-sale revenue, the quarterly magnitude of the overstatement, and Ms. Prescott's role in directing or implementing that practice; and

(3) The roles of other individuals in the schemes under investigation, including specifically Garrett W. Daskine, Division President of VCR, and Ryan Mateo Serrano, Controller of VCR, and the nature and extent of Ms. Prescott's communications and coordination with those individuals.

Mr. Quinn further noted that since the first interview on October 11, 2023, the investigation team had obtained additional documents and information relevant to each of these topic areas, including additional forensic-accounting analysis prepared by Crestline Forensic Advisory LLC, additional documentary evidence obtained from VCR's electronic records, and bank records obtained pursuant to subpoena. Mr. Quinn advised Ms. Prescott that she would be presented with certain of these documents during the course of the interview.

IV. Clearwater Design Collective Inc. — Ownership and Operations

A. Formation and Corporate Structure

Ms. Prescott was asked about Clearwater Design Collective Inc. ("CDC"), a Florida corporation formed on June 4, 2021, as reflected in records obtained from the Florida Division of Corporations. Ms. Prescott paused and consulted with Ms. Langford before responding. After conferring with her counsel, Ms. Prescott acknowledged that she is the sole shareholder of CDC.

Ms. Prescott stated that CDC was incorporated using Ryan Mateo Serrano as the registered agent, an arrangement she described as a matter of "convenience" because Mr. Serrano had experience with corporate filings and had assisted other individuals within VCR with similar administrative tasks. Ms. Prescott did not elaborate on who had approached Mr. Serrano to serve as registered agent or whether the decision to use Mr. Serrano in that capacity was hers alone.

Ms. Prescott initially characterized CDC as having been formed to provide interior-design consulting services for hospitality properties, describing it as a "side business" she had considered pursuing. She stated that she had an interest in interior design and had contemplated developing a consulting practice that would serve resort and hotel operators.

When pressed on whether CDC had ever performed legitimate work for any client other than VCR, Ms. Prescott could not identify any such client. She stated that CDC had not entered into any contracts with third-party clients, had not marketed its services to any entity other than VCR, and had not generated any revenue from any source other than VCR. She could not identify any employees, subcontractors, or design professionals who had performed work on behalf of CDC.

Ms. Prescott was asked who prepared the articles of incorporation for CDC. She stated she could not recall, explaining that the formation had taken place over two years ago and that the details were not fresh in her memory. When shown copies of the articles of incorporation filed with the Florida Division of Corporations, which reflected that the documents had been prepared and filed by Ryan Mateo Serrano, Ms. Prescott confirmed that this was "possible" and stated it was "consistent with what [she] would expect" given Mr. Serrano's role as registered agent.

B. Invoicing and Payments

Ms. Prescott was presented with copies of sixteen (16) invoices issued by CDC to VCR during the period from August 2021 through May 2023. These invoices, which had been produced from VCR's accounts-payable records and cross-referenced against CDC's bank statements, totaled $587,600 in the aggregate. The invoices described purported capital-improvement work, including interior-design consulting, furniture procurement coordination, and renovation-planning services, performed at two VCR-managed properties: Coral Dune Resort & Residences, located at 14200 Emerald Coast Parkway, Destin, FL 32541, and Palmetto Bluff Club, located at 3950 Longboat Key Drive, Sarasota, FL 34228.

Ms. Prescott was asked who prepared the invoices. She stated that she "provided input" on the invoices, including the descriptions of services and the amounts, but that Mr. Serrano generated most of the actual invoice documents and the corresponding purchase orders within VCR's procurement system. She stated that Mr. Serrano had access to the templates used for vendor invoicing and that he was responsible for entering the purchase orders into VCR's financial systems.

Ms. Prescott acknowledged that payments from VCR in satisfaction of these invoices were deposited into a bank account held in CDC's name at Coastal Commerce Bank. She further acknowledged that she was the sole signatory on that account and that she controlled the disposition of funds deposited into it.

When asked what services, materials, or deliverables CDC provided to VCR in exchange for the $587,600 in payments reflected on the sixteen invoices, Ms. Prescott paused for an extended period and then conferred with Ms. Langford. Following this consultation, Ms. Prescott stated that she could not identify specific deliverables corresponding to each invoice. She stated generally that she had provided "design recommendations" and "input on furniture selection" but was unable to point to any written reports, design plans, presentations, specifications, proposals, or other tangible work product generated by CDC for VCR. She was unable to identify any specific furniture or materials that had been procured by or through CDC on behalf of VCR.

Ms. Prescott acknowledged that no written contracts existed between VCR and CDC for the services described in the invoices. She stated there were no master service agreements, statements of work, engagement letters, or other written documentation memorializing the scope, terms, pricing, or duration of any CDC engagement with VCR. Ms. Prescott acknowledged that this was inconsistent with VCR's standard procurement policies, which require a written contract or purchase order for any vendor engagement exceeding $10,000.

Ms. Prescott was then shown the forensic tracing analysis prepared by Crestline Forensic Advisory LLC (the investigation team's retained forensic-accounting firm). The Crestline analysis traced the flow of funds from VCR's operating accounts, through CDC's account at Coastal Commerce Bank, and into various accounts and payment channels benefiting Ms. Prescott personally. Specifically, the Crestline analysis documented that funds received by CDC were used for, among other things, personal credit-card payments on accounts in Ms. Prescott's name, mortgage payments on Ms. Prescott's personal residence, and range other personal expenditures. After reviewing the Crestline analysis and consulting with Ms. Langford at length, Ms. Prescott declined to answer further questions regarding the use of CDC funds. Ms. Langford stated on the record that Ms. Prescott would not answer questions about the ultimate disposition of CDC funds at this time, invoking Ms. Prescott's right to consult with and follow the advice of her personal counsel.

C. Relationship to Other Shell Entities

Ms. Prescott was asked whether she had any ownership interest, directly or indirectly, in Gulf Standard Contracting LLC ("GSC") or Suncoast Property Services LLC ("SPS"). She stated that she did not have any ownership interest in either entity and had never held any membership interest, equity position, or beneficial ownership stake in GSC or SPS.

Ms. Prescott was asked whether she was aware that Garrett W. Daskine was the beneficial owner of Gulf Standard Contracting LLC, a Florida limited liability company formed on March 12, 2021, and the sole member of Suncoast Property Services LLC, a Florida limited liability company formed on November 18, 2021. Ms. Prescott stated that she was "generally aware" that Mr. Daskine had "some business interests" outside of his role at VCR, but she denied knowledge of the specific corporate details of either GSC or SPS, including the dates of formation, the nature of the entities' purported business activities, or the identity of their members or beneficial owners.

When asked whether the three entities — GSC, CDC, and SPS — were coordinated or operated as part of a single scheme to extract funds from VCR through fictitious vendor payments, Ms. Prescott stated that she could only speak to CDC and denied coordinating with Mr. Daskine regarding GSC or SPS invoices. She stated she did not have visibility into the invoicing practices of GSC or SPS and was not involved in the approval of purchase orders for those entities.

Ms. Prescott was asked whether she was aware that, across all three entities, the investigation team had identified forty-seven (47) fictitious purchase orders totaling $1,830,000, broken down as follows: $812,400 attributable to GSC, $587,600 attributable to CDC, and $430,000 attributable to SPS. Ms. Langford objected to the use of the word "fictitious" to characterize the purchase orders, stating that the characterization was a conclusion the investigation team had drawn and that Ms. Prescott was not in a position to adopt. However, Ms. Langford permitted Ms. Prescott to confirm that she was aware of the aggregate dollar figure, as that information had been shared with her during the first interview on October 11, 2023.

V. Revenue-Recognition Overstatement — Mechanics and Prescott's Role

A. Timeshare-Interest Sales Process at VCR

Ms. Prescott was asked to describe the standard sales process for timeshare interests at VCR, focusing on the two properties at issue: Coral Dune Resort & Residences (Phase III) and Palmetto Bluff Club (Phase II).

Ms. Prescott described a multi-step process in which a prospective purchaser is first identified through VCR's marketing and sales operations, typically during a scheduled property tour or sales presentation. Upon expressing interest in purchasing a timeshare interval, the purchaser signs a purchase agreement and submits a deposit, typically equal to ten percent (10%) of the total purchase price. The purchase agreement is executed by the purchaser and a VCR sales representative.

Ms. Prescott confirmed that, under Florida Statute § 721.10, a purchaser of a timeshare interest is entitled to a ten (10) calendar-day rescission period, commencing on the later of the date of execution of the purchase agreement or the date on which the purchaser receives all required disclosure documents. During this rescission period, the purchaser has the right to cancel the purchase and receive a full refund of the deposit. The rescission right is non-waivable under Florida law.

Ms. Prescott further confirmed that, under Accounting Standards Codification Topic 606 ("ASC 606"), Revenue from Contracts with Customers, and under VHG's stated accounting policies as set forth in the company's annual report and internal accounting-policy manual, revenue from timeshare-interest sales should be recognized only upon expiration of the rescission period — that is, at the point at which the sale is no longer subject to cancellation by the purchaser and the performance obligations have been satisfied. Prior to the expiration of the rescission period, the deposit should be recorded as deferred revenue (a liability) rather than as recognized revenue.

Ms. Prescott confirmed that VCR's rescission rate — the percentage of timeshare-interest purchase agreements cancelled by purchasers during the rescission period — during the investigated period (Q3 2022 through Q2 2023) was approximately 14.3%. She acknowledged that this rate was higher than the industry average of approximately 11%, as reported in the American Resort Development Association's most recent annual survey. When asked whether the elevated rescission rate was itself a source of concern, Ms. Prescott stated that it had been discussed at division meetings but that it was attributed to the broader economic environment and rising interest rates.

B. Premature Revenue Booking

Ms. Prescott was asked to explain the practice of recording timeshare-interest deposits as completed-sale revenue upon signing of the purchase agreement, rather than upon expiration of the ten-day rescission period required under ASC 606 and VHG's accounting policies.

Ms. Prescott acknowledged that VCR's finance team, under her direction, booked deposits as recognized revenue at the time of contract execution — that is, on the date the purchase agreement was signed and the deposit received — rather than deferring recognition until the rescission period expired.

She initially characterized this practice as a "timing difference" that she believed would "wash out" in subsequent quarters. She explained her reasoning as follows: because the majority of purchase agreements were not rescinded, she viewed the premature recognition as accelerating, by only ten days, revenue that would ultimately be recognized in the same quarter. She stated that she did not believe the practice had a material impact on VCR's quarterly results.

When confronted with the data demonstrating that the overstatement did not in fact "wash out" but instead persisted and rolled forward from quarter to quarter, Ms. Prescott adjusted her characterization. The investigation team presented evidence showing that rescission reversals — adjustments to back out revenue from contracts that were subsequently cancelled — were not processed contemporaneously with the rescission events but were instead deferred to the following quarter. This deferral created a compounding effect in which each quarter's revenue included not only premature recognition of new deposits but also the residual overstatement carried forward from the prior quarter's unreversed rescissions. Ms. Prescott acknowledged, upon reviewing this data, that the practice created a "persistent gap" between reported revenue and revenue that should have been recognized under ASC 606.

Ms. Prescott was walked through the quarter-by-quarter overstatement figures compiled by the investigation team and Crestline Forensic Advisory:

Ms. Prescott reviewed the figures and did not dispute them. She confirmed that she was aware of the general magnitude of the overstatement, though she stated she had not personally compiled the analysis in the form presented.

Ms. Prescott confirmed that the $9.8 million figure in Q1 2023 was the specific amount that had been flagged by Hargrove, Steen & Aldrich LLP ("HSA"), VHG's independent registered public accounting firm, during their interim review of VCR's financial results for the quarter ended March 31, 2023. She confirmed her awareness that the HSA interim review findings led to the June 19, 2023 communication from the HSA engagement team to VHG Chief Financial Officer Thomas Rhett Griffith and Audit Committee Chair Diane Kowalski, in which HSA identified a potential material weakness in VCR's internal controls over financial reporting relating to revenue recognition for timeshare-interest sales.

C. Direction and Knowledge

Ms. Prescott was asked who directed or authorized the premature revenue-recognition practice at VCR. After conferring with Ms. Langford, Ms. Prescott stated that the practice was "consistent with how VCR had historically reported" and that it predated her assumption of the VP Finance role. She did not identify when the practice had originated or who had initially implemented it. However, she acknowledged that Garrett W. Daskine, as Division President of VCR, was aware of the approach and approved it. She stated that Mr. Daskine reviewed VCR's quarterly financial results prior to submission to VHG corporate for consolidation and that the premature recognition was reflected in the numbers Mr. Daskine reviewed.

Ms. Prescott was asked whether she had brought the issue to the attention of VHG corporate finance or the CFO at any time. She stated that she did not. She explained that VCR's financial reporting was "handled at the division level" and that division-level results were submitted to VHG corporate finance for consolidation without detailed review by corporate of underlying accounting methodologies. She stated that VCR's finance team had autonomy over the division's accounting practices, subject to compliance with VHG's general accounting-policy manual.

When asked whether she understood that the premature recognition of timeshare-interest deposits as revenue — before the expiration of the statutory rescission period — was inconsistent with ASC 606 and VHG's own accounting policies, Ms. Prescott stated that she "believed there was a reasonable basis" for the practice at the time. She referenced what she described as "practical considerations" related to the timing of sales events and the volume of transactions being processed. She acknowledged, however, that in hindsight the practice was "not the correct approach" and that revenue should have been deferred until the rescission period expired.

Ms. Prescott was asked whether the escalation in the overstatement from $4.7 million in Q3 2022 to $9.8 million in Q1 2023 was intentional — that is, whether deliberate steps were taken to increase the magnitude of the overstatement over time. Ms. Prescott stated that the increase reflected higher sales volume at Coral Dune Resort & Residences Phase III, which launched in Q4 2022 and experienced a significant ramp-up in contract activity during Q1 2023. She denied that there was a deliberate effort to inflate the overstatement and characterized the growth as an organic consequence of applying the same (admittedly incorrect) accounting practice to a larger volume of transactions.

Ms. Prescott was asked whether the revenue-recognition practice was connected to internal performance targets or bonus calculations tied to VCR's quarterly revenue. Ms. Prescott conferred with Ms. Langford before answering. She acknowledged that VCR division management bonuses were tied, in part, to quarterly revenue targets established by VHG corporate as part of the annual budgeting process. She stated that meeting or exceeding quarterly revenue targets was one of several factors considered in calculating division management bonuses for Mr. Daskine, herself, and other members of VCR's senior leadership team. She denied, however, that the connection between the revenue-recognition practice and bonus calculations was a motivating factor for her personally. She stated that her decisions regarding revenue recognition were based on what she believed to be appropriate accounting treatment at the time.

D. Impact on VHG Consolidated Financials

Ms. Prescott was presented with the investigation team's analysis of the impact of the FY 2022 revenue-recognition overstatement on VHG's consolidated financial statements. The analysis focused on the combined overstatement for Q3 and Q4 2022, totaling $10.8 million, as those quarters fell within the fiscal year for which VHG filed its most recent annual report on Form 10-K.

At VHG's effective tax rate of 24.3%, the after-tax income overstatement attributable to the VCR revenue-recognition practice for FY 2022 was approximately $8.17 million. This figure represented approximately 5.74% of VHG's reported consolidated net income of $142.3 million for FY 2022, a level that the investigation team has assessed as potentially material under both quantitative and qualitative materiality frameworks.

The analysis also noted that VCR's FY 2022 revenue as reported was $438.7 million, representing approximately 23.46% of VHG's consolidated revenue of $1.87 billion. VCR was thus a significant contributor to VHG's top-line results, and errors in VCR's revenue recognition had a correspondingly significant impact on the consolidated financials.

Ms. Prescott stated that she had not personally calculated the impact of the VCR overstatement on VHG's consolidated financial statements. She stated that her focus had been on VCR's division-level reporting and that she had not considered the downstream effect of VCR's revenue figures on VHG's consolidated results, including the implications for VHG's SEC filings.

VI. Relationship with Garrett Daskine and Ryan Serrano

A. Daskine's Direction

Ms. Prescott was asked about the nature and frequency of her communications with Garrett W. Daskine regarding VCR's financial reporting and operations. She described a pattern of regular weekly meetings, typically held on Monday mornings, at which VCR's senior management team reviewed operational and financial performance. She stated that she also communicated with Mr. Daskine frequently by email and telephone throughout the week regarding financial matters, including revenue projections, expense management, and capital-improvement budgets.

Ms. Prescott stated that Mr. Daskine was "very focused" on quarterly revenue targets and that meeting or exceeding the projections submitted to VHG corporate was "a priority" for the division management team. She stated that Mr. Daskine monitored revenue performance closely and expected the finance team to provide updated forecasts on a weekly basis during peak sales periods.

When asked whether Mr. Daskine specifically directed her to book timeshare-interest deposits as completed-sale revenue prior to the expiration of the rescission period, Ms. Prescott stated: "He expected the numbers to reflect the business we had closed. He didn't get into the accounting details." At this point, Ms. Langford intervened to note for the record that Ms. Prescott was not conceding that Mr. Daskine gave a specific directive to implement the premature revenue-recognition practice. Ms. Langford stated that Ms. Prescott's answer described Mr. Daskine's general expectations regarding financial reporting and should not be construed as an admission that a specific instruction was given.

Ms. Prescott was asked whether Mr. Daskine was aware that the practice of booking deposits as revenue prior to the expiration of the rescission period was inconsistent with ASC 606. She stated that she did not know what Mr. Daskine understood about accounting standards or whether he had independently assessed the practice against ASC 606 or VHG's accounting-policy manual. She stated that her communications with Mr. Daskine regarding revenue recognition focused on the dollar amounts reported, not on the underlying accounting methodology.

B. Serrano's Role

Ms. Prescott confirmed that Ryan Mateo Serrano, in his capacity as VCR Controller, was responsible for generating purchase orders within VCR's procurement system and for processing vendor payments through VCR's accounts-payable function. She stated that Mr. Serrano reported to her in the VCR finance organizational structure.

Ms. Prescott stated that she was aware that Mr. Serrano created purchase orders for CDC — the entity she owned — and that she approved some of those purchase orders. She stated she could not recall with specificity how many of the CDC purchase orders she personally approved, but she acknowledged her general involvement in the approval process.

When asked whether she was aware that Mr. Serrano also created purchase orders for Gulf Standard Contracting LLC and Suncoast Property Services LLC, Ms. Prescott stated that she was "aware of those vendors" in the VCR system. She characterized GSC and SPS as "Garrett's contacts," referring to Mr. Daskine, and stated that the relationships with those vendors were managed by Mr. Daskine rather than by her. She did not elaborate on the basis for her characterization of GSC and SPS as Mr. Daskine's contacts.

Ms. Prescott acknowledged that Mr. Serrano served as the registered agent for both CDC and GSC. She stated she was aware of Mr. Serrano's role as registered agent for CDC, given her ownership of that entity, but stated she had not previously been aware that Mr. Serrano also served as registered agent for GSC until the first interview on October 11, 2023.

VII. Communications with HSA and Corporate Finance

Ms. Prescott stated that she had no direct communications with William Gentry, the HSA engagement partner responsible for VHG's audit, regarding the Q1 2023 interim review findings or the potential material weakness identified in the June 19, 2023 communication from HSA to VHG. She stated that she was not contacted by Mr. Gentry or any member of the HSA engagement team in connection with the interim review and did not participate in any meetings or calls with HSA on the topic.

Ms. Prescott stated that any communications between VCR and HSA regarding revenue-recognition matters would have been handled by Mr. Serrano, in his role as VCR Controller, or through VHG's corporate finance team. She stated that Mr. Serrano served as the primary point of contact between VCR's finance function and HSA for purposes of the quarterly review process.

Ms. Prescott stated that she did not recall any communications with VHG Chief Financial Officer Thomas Rhett Griffith about VCR's revenue-recognition practices at any time prior to Ms. Prescott being placed on administrative leave on August 7, 2023. She stated that her interactions with Mr. Griffith were limited to periodic division financial reviews and budget discussions, and that the specific methodology for recognizing timeshare-interest revenue was not a topic of discussion in those interactions.

Ms. Prescott confirmed that she was not consulted in connection with VHG's filing of a Current Report on Form 8-K on August 14, 2023, which disclosed under Item 4.02 that VHG's previously issued financial statements should no longer be relied upon. She stated she first became aware of the 8-K filing through media reports.

VIII. Prescott's Awareness of SOX Obligations

Ms. Prescott was asked about her understanding of VHG's obligations under Sections 302 and 404 of the Sarbanes-Oxley Act of 2002 ("SOX") as they pertained to VCR's internal controls over financial reporting.

Ms. Prescott stated that she understood generally that VHG, as a publicly traded company, was required to maintain effective internal controls over financial reporting and that VHG's Chief Executive Officer and Chief Financial Officer were required to certify the financial statements included in VHG's periodic reports filed with the SEC. She stated she was familiar with the concept of management's assessment of internal controls and knew that HSA provided an opinion on the effectiveness of those controls as part of the annual audit.

When asked whether she understood that the revenue-recognition practices she implemented at VCR could constitute a material weakness in VHG's internal controls over financial reporting, Ms. Prescott stated that she "did not think of it in those terms" at the time. She stated that she viewed the revenue-recognition approach as a division-level accounting practice and did not consider its implications for VHG's SOX compliance or the certifications provided by VHG's CEO and CFO.

Ms. Prescott was asked whether she was aware of VHG's whistleblower or ethics-reporting procedures, including any confidential reporting hotline maintained by VHG for the reporting of potential accounting irregularities or ethical concerns. She stated that she was generally aware that VHG maintained such a hotline and that the existence of the hotline was referenced in VHG's code of conduct, which she had reviewed. She stated, however, that she had never used the hotline and did not consider reporting the revenue-recognition practices through that channel or any other internal reporting mechanism.

IX. Prescott's Administrative Leave and Post-Leave Contacts

Ms. Prescott confirmed that she was placed on administrative leave from her position as VP Finance of VCR on August 7, 2023. She confirmed that Garrett W. Daskine and Ryan Mateo Serrano were also placed on administrative leave on the same date.

Ms. Prescott stated that she has had no contact with Mr. Daskine since being placed on administrative leave. She stated she has not communicated with Mr. Daskine by telephone, email, text message, or any other means, and has not met with Mr. Daskine in person.

When asked whether she had communicated with Mr. Serrano since being placed on administrative leave, Ms. Langford instructed Ms. Prescott not to answer questions about communications with other subjects of the investigation, stating that Ms. Prescott's communications with Mr. Serrano — to the extent any had occurred — could implicate privilege and other considerations that Ms. Langford wished to evaluate before permitting a response.

Ms. Prescott stated that she has retained all documents in her possession, custody, or control — including electronic documents, emails, text messages, physical files, and other materials — as required by the document-preservation notices issued by VHG and Calderwood & Harkness LLP on July 24, 2023. She confirmed that she has not destroyed, deleted, altered, or discarded any documents since receiving the preservation notices.

X. Closing and Procedural Notes

At approximately 1:45 p.m., Mr. Quinn concluded the interview. The interview had lasted approximately three hours and forty-five minutes, including one fifteen-minute break taken at approximately 11:45 a.m.

Mr. Quinn reminded Ms. Prescott of her continuing obligation to preserve all documents in her possession, custody, or control that are potentially relevant to the investigation, consistent with the preservation notices previously issued. He also reminded Ms. Prescott of her obligation to refrain from discussing the substance of the interview — including the topics discussed, the questions asked, and the answers provided — with any VHG employees, officers, directors, or other persons, other than her personal counsel, Ms. Langford.

Ms. Langford reserved the right to provide additional information or clarification on behalf of Ms. Prescott following the interview. Ms. Langford stated that she would review the topics covered in the session and determine whether there were any matters on which Ms. Prescott wished to supplement or clarify her responses.

Ms. Langford did not indicate whether Ms. Prescott would be available for any further interview sessions if requested by the investigation team.

The interview was not audio- or video-recorded. This memorandum was prepared by Steven Hollander from contemporaneous handwritten notes taken during the interview. The memorandum was reviewed for accuracy and completeness by Liam Donahue and Howard Quinn.

XI. Assessment and Next Steps (Internal Work Product)

This section constitutes attorney work product prepared in anticipation of litigation and reflects the mental impressions, conclusions, and legal theories of counsel. This section should not be disclosed outside the Calderwood & Harkness investigation team without prior approval of the Responsible Partner.

CDC and Fictitious-Vendor Scheme. Ms. Prescott's acknowledgment that she is the sole shareholder of CDC, coupled with her inability to identify any legitimate work performed by CDC for any client (including VCR), significantly strengthens the investigation team's findings regarding the fictitious-vendor scheme. The absence of any written contracts, the inability to identify any deliverables, and the acknowledgment that no other clients existed are all consistent with the conclusion that CDC was a shell entity used to extract funds from VCR through fabricated invoices. Ms. Prescott's admission that Mr. Serrano generated the invoices and purchase orders, while she "provided input," establishes her direct involvement in the invoicing mechanics.

Disposition of CDC Funds. Ms. Prescott's refusal, on Ms. Langford's advice, to address the ultimate disposition of CDC funds is noted. This refusal is not unexpected given the personal criminal exposure that such testimony could create. However, the Crestline forensic tracing analysis already documents the flow of CDC funds to Ms. Prescott's personal credit-card accounts and other personal expenditures with sufficient specificity to support the fictitious-vendor finding. The refusal does not create a gap in the investigation's factual record on this point.

Revenue-Recognition Overstatement. Ms. Prescott's characterization of the premature revenue-recognition practice as a "timing difference" that would "wash out" is inconsistent with the evidence showing a persistent, rolling overstatement across four quarters totaling $26.4 million. The evidence demonstrates that the overstatement did not self-correct because rescission reversals were systematically deferred to the following quarter, creating a compounding effect. The elevated rescission rate of 14.3% (versus an 11% industry average) made the gap between premature recognition and actual collectible revenue especially predictable and significant. Ms. Prescott's concession that the practice was "not the correct approach" and that it created a "persistent gap" undermines the "timing difference" defense. Her acknowledgment that division management bonuses were tied to quarterly revenue targets — combined with her denial that this created a motive — should be evaluated in light of the totality of the evidence.

Daskine's Role. Ms. Prescott's statements regarding Mr. Daskine's role are somewhat guarded, likely reflecting Ms. Langford's strategic advice against making statements that could be construed as either fully cooperating with the investigation or definitively implicating Mr. Daskine. Nevertheless, Ms. Prescott's characterization of Mr. Daskine as someone who "expected the numbers to reflect the business we had closed" and who was "very focused" on quarterly revenue targets, combined with her acknowledgment that Mr. Daskine was "aware of and approved" the revenue-recognition approach, is consistent with the emerging picture from other evidence that Mr. Daskine directed the overall scheme while Ms. Prescott implemented the accounting mechanics. The interview did not elicit new information about Mr. Daskine's connection to GSC or SPS beyond what was already known.

Next Steps. The investigation team recommends the following actions:

1. Crestline Coordination. Coordinate with Crestline Forensic Advisory LLC (Douglas Reinhardt, lead engagement partner; Priya Venkatesh, senior manager) to finalize the fund-tracing analysis for CDC and cross-reference the CDC analysis with the broader shell-entity analysis memorandum currently in preparation, which is targeted for completion by November 28, 2023.

2. Serrano Interview. Consider whether a further interview of Ms. Prescott is warranted following the second interview of Mr. Serrano, which is anticipated in early December 2023 pursuant to the cooperation agreement executed by Mr. Serrano on November 15, 2023. Information obtained from Mr. Serrano may illuminate additional details regarding Ms. Prescott's involvement in the CDC invoicing scheme and her coordination (if any) with Mr. Daskine regarding GSC and SPS.

3. Langford Communications. Monitor whether Ms. Langford provides any supplemental information or clarification on behalf of Ms. Prescott, as reserved at the close of the interview.

4. Post-Leave Communications. Ms. Langford's instruction to Ms. Prescott not to answer questions regarding post-leave communications with Mr. Serrano warrants follow-up. If Mr. Serrano's cooperation interview reveals communications between Ms. Prescott and Mr. Serrano during the administrative-leave period, this could raise concerns about potential witness coordination or obstruction that would need to be assessed.

Prepared by: Steven Hollander, Associate, Calderwood & Harkness LLP

Reviewed by: Liam Donahue, Senior Associate, Calderwood & Harkness LLP Howard Quinn, Partner, Calderwood & Harkness LLP

Distribution: Restricted to Calderwood & Harkness LLP investigation team members with a need to know. Copies to be provided to the Audit Committee of the Board of Directors of Verimark Hospitality Group Inc. upon request of the Audit Committee Chair.

This memorandum and all attachments are PRIVILEGED AND CONFIDENTIAL and are protected by the attorney-client privilege and the attorney work-product doctrine. This memorandum was prepared by counsel in connection with the provision of legal advice to the Audit Committee of the Board of Directors of Verimark Hospitality Group Inc. and in anticipation of litigation. No portion of this memorandum may be disclosed, distributed, or reproduced without the prior written authorization of Howard Quinn, Calderwood & Harkness LLP.

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

Quarter	Period Ending	Revenue Overstatement
Q3 2022	September 30, 2022	$4.7 million
Q4 2022	December 31, 2022	$6.1 million
Q1 2023	March 31, 2023	$9.8 million
Q2 2023	June 30, 2023	$5.8 million
Aggregate	$26.4 million

PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGE / ATTORNEY WORK PRODUCT
MEMORANDUM OF INTERVIEW
TO: File — Investigation of Verimark Coastal Resorts LLC (Matter No. 1021-00008)
FROM: Liam Donahue, Senior Associate, Calderwood & Harkness LLP Steven Hollander, Associate, Calderwood & Harkness LLP
DATE: November 8, 2023
RE: Second Interview of Nicole Prescott, Vice President of Finance, Verimark Coastal Resorts LLC
Interview Date: November 8, 2023
Interview Time: 10:00 a.m. – 1:45 p.m. (approximately 3 hours 45 minutes, with one 15-minute break)
Interview Location: Offices of Calderwood & Harkness LLP, 200 South Biscayne Boulevard, Suite 4400, Miami, FL 33131
I. Attendees
The following individuals were present for the interview:
Interviewers:
• Howard Quinn, Partner (Responsible Partner), Calderwood & Harkness LLP
• Liam Donahue, Senior Associate (Lead Associate), Calderwood & Harkness LLP
Note-Taker:
• Steven Hollander, Associate (Working Associate), Calderwood & Harkness LLP
Interviewee:
• Nicole Prescott, Vice President of Finance, Verimark Coastal Resorts LLC ("VCR"). Ms. Prescott has been on administrative leave since August 7, 2023.
Counsel for Interviewee:
• Candace O'Brien Langford, Langford Pace LLP, Tallahassee, FL
Others Present: None.
II. Upjohn Warnings and Preliminary Matters
At the outset of the interview, Howard Quinn re-administered the standard Upjohn warning to Ms. Prescott, consistent with the script dated August 14, 2023 (a copy of which is maintained in the investigation files). The following acknowledgments were obtained from Ms. Prescott:
Ms. Prescott confirmed that she understood that Calderwood & Harkness LLP represents the Audit Committee of the Board of Directors of Verimark Hospitality Group Inc. ("VHG"), and not any individual officer, director, or employee of VHG or any of its subsidiaries, including VCR. Ms. Prescott specifically confirmed that she understood Calderwood & Harkness LLP does not represent her personally in connection with this investigation or any related matter.
Ms. Prescott confirmed that she understood that the attorney-client privilege attaching to this interview and its contents belongs to VHG and its Audit Committee, and not to Ms. Prescott individually. Ms. Prescott confirmed that she understood this means she cannot assert the privilege over the contents of this interview on her own behalf.
Ms. Prescott confirmed that she understood that the Audit Committee, in its sole discretion, may choose to waive the attorney-client privilege and disclose the contents of the interview, including to third parties such as the Securities and Exchange Commission, the United States Department of Justice, or other government regulators or law-enforcement agencies.
Ms. Prescott confirmed that she understood the interview was confidential and that she should not discuss the substance of the interview, the questions asked, or her responses with any other VHG employees, officers, directors, or third parties, other than her own personal counsel, Ms. Langford.
Ms. Langford acknowledged on the record that these same Upjohn warnings had been administered to Ms. Prescott at the commencement of the first interview session on October 11, 2023, and that Ms. Prescott had understood them at that time and continued to understand them for purposes of this second session.
Mr. Quinn also referenced the October 30, 2023 letter from Mr. Quinn to Langford Pace LLP, in which Calderwood & Harkness requested this follow-up interview session and identified the general subject areas to be addressed. Ms. Langford confirmed receipt of the October 30, 2023 letter and stated that she and Ms. Prescott had discussed the letter and the anticipated topics in advance of the session.
III. Purpose and Scope of Second Interview
Mr. Quinn explained to Ms. Prescott that the purpose of this second interview session was to explore in greater detail three principal areas of inquiry:
(1) Ms. Prescott's ownership of and involvement with Clearwater Design Collective Inc. ("CDC"), including the formation, operation, invoicing practices, and financial activities of that entity and its relationship to other entities identified during the investigation;
(2) The specific mechanics of the revenue-recognition overstatement at VCR, including the process by which timeshare-interest deposits were recorded as completed-sale revenue, the quarterly magnitude of the overstatement, and Ms. Prescott's role in directing or implementing that practice; and
(3) The roles of other individuals in the schemes under investigation, including specifically Garrett W. Daskine, Division President of VCR, and Ryan Mateo Serrano, Controller of VCR, and the nature and extent of Ms. Prescott's communications and coordination with those individuals.
Mr. Quinn further noted that since the first interview on October 11, 2023, the investigation team had obtained additional documents and information relevant to each of these topic areas, including additional forensic-accounting analysis prepared by Crestline Forensic Advisory LLC, additional documentary evidence obtained from VCR's electronic records, and bank records obtained pursuant to subpoena. Mr. Quinn advised Ms. Prescott that she would be presented with certain of these documents during the course of the interview.
IV. Clearwater Design Collective Inc. — Ownership and Operations
A. Formation and Corporate Structure
Ms. Prescott was asked about Clearwater Design Collective Inc. ("CDC"), a Florida corporation formed on June 4, 2021, as reflected in records obtained from the Florida Division of Corporations. Ms. Prescott paused and consulted with Ms. Langford before responding. After conferring with her counsel, Ms. Prescott acknowledged that she is the sole shareholder of CDC.
Ms. Prescott stated that CDC was incorporated using Ryan Mateo Serrano as the registered agent, an arrangement she described as a matter of "convenience" because Mr. Serrano had experience with corporate filings and had assisted other individuals within VCR with similar administrative tasks. Ms. Prescott did not elaborate on who had approached Mr. Serrano to serve as registered agent or whether the decision to use Mr. Serrano in that capacity was hers alone.
Ms. Prescott initially characterized CDC as having been formed to provide interior-design consulting services for hospitality properties, describing it as a "side business" she had considered pursuing. She stated that she had an interest in interior design and had contemplated developing a consulting practice that would serve resort and hotel operators.
When pressed on whether CDC had ever performed legitimate work for any client other than VCR, Ms. Prescott could not identify any such client. She stated that CDC had not entered into any contracts with third-party clients, had not marketed its services to any entity other than VCR, and had not generated any revenue from any source other than VCR. She could not identify any employees, subcontractors, or design professionals who had performed work on behalf of CDC.
Ms. Prescott was asked who prepared the articles of incorporation for CDC. She stated she could not recall, explaining that the formation had taken place over two years ago and that the details were not fresh in her memory. When shown copies of the articles of incorporation filed with the Florida Division of Corporations, which reflected that the documents had been prepared and filed by Ryan Mateo Serrano, Ms. Prescott confirmed that this was "possible" and stated it was "consistent with what [she] would expect" given Mr. Serrano's role as registered agent.
B. Invoicing and Payments
Ms. Prescott was presented with copies of sixteen (16) invoices issued by CDC to VCR during the period from August 2021 through May 2023. These invoices, which had been produced from VCR's accounts-payable records and cross-referenced against CDC's bank statements, totaled $587,600 in the aggregate. The invoices described purported capital-improvement work, including interior-design consulting, furniture procurement coordination, and renovation-planning services, performed at two VCR-managed properties: Coral Dune Resort & Residences, located at 14200 Emerald Coast Parkway, Destin, FL 32541, and Palmetto Bluff Club, located at 3950 Longboat Key Drive, Sarasota, FL 34228.
Ms. Prescott was asked who prepared the invoices. She stated that she "provided input" on the invoices, including the descriptions of services and the amounts, but that Mr. Serrano generated most of the actual invoice documents and the corresponding purchase orders within VCR's procurement system. She stated that Mr. Serrano had access to the templates used for vendor invoicing and that he was responsible for entering the purchase orders into VCR's financial systems.
Ms. Prescott acknowledged that payments from VCR in satisfaction of these invoices were deposited into a bank account held in CDC's name at Coastal Commerce Bank. She further acknowledged that she was the sole signatory on that account and that she controlled the disposition of funds deposited into it.
When asked what services, materials, or deliverables CDC provided to VCR in exchange for the $587,600 in payments reflected on the sixteen invoices, Ms. Prescott paused for an extended period and then conferred with Ms. Langford. Following this consultation, Ms. Prescott stated that she could not identify specific deliverables corresponding to each invoice. She stated generally that she had provided "design recommendations" and "input on furniture selection" but was unable to point to any written reports, design plans, presentations, specifications, proposals, or other tangible work product generated by CDC for VCR. She was unable to identify any specific furniture or materials that had been procured by or through CDC on behalf of VCR.
Ms. Prescott acknowledged that no written contracts existed between VCR and CDC for the services described in the invoices. She stated there were no master service agreements, statements of work, engagement letters, or other written documentation memorializing the scope, terms, pricing, or duration of any CDC engagement with VCR. Ms. Prescott acknowledged that this was inconsistent with VCR's standard procurement policies, which require a written contract or purchase order for any vendor engagement exceeding $10,000.
Ms. Prescott was then shown the forensic tracing analysis prepared by Crestline Forensic Advisory LLC (the investigation team's retained forensic-accounting firm). The Crestline analysis traced the flow of funds from VCR's operating accounts, through CDC's account at Coastal Commerce Bank, and into various accounts and payment channels benefiting Ms. Prescott personally. Specifically, the Crestline analysis documented that funds received by CDC were used for, among other things, personal credit-card payments on accounts in Ms. Prescott's name, mortgage payments on Ms. Prescott's personal residence, and range other personal expenditures. After reviewing the Crestline analysis and consulting with Ms. Langford at length, Ms. Prescott declined to answer further questions regarding the use of CDC funds. Ms. Langford stated on the record that Ms. Prescott would not answer questions about the ultimate disposition of CDC funds at this time, invoking Ms. Prescott's right to consult with and follow the advice of her personal counsel.
C. Relationship to Other Shell Entities
Ms. Prescott was asked whether she had any ownership interest, directly or indirectly, in Gulf Standard Contracting LLC ("GSC") or Suncoast Property Services LLC ("SPS"). She stated that she did not have any ownership interest in either entity and had never held any membership interest, equity position, or beneficial ownership stake in GSC or SPS.
Ms. Prescott was asked whether she was aware that Garrett W. Daskine was the beneficial owner of Gulf Standard Contracting LLC, a Florida limited liability company formed on March 12, 2021, and the sole member of Suncoast Property Services LLC, a Florida limited liability company formed on November 18, 2021. Ms. Prescott stated that she was "generally aware" that Mr. Daskine had "some business interests" outside of his role at VCR, but she denied knowledge of the specific corporate details of either GSC or SPS, including the dates of formation, the nature of the entities' purported business activities, or the identity of their members or beneficial owners.
When asked whether the three entities — GSC, CDC, and SPS — were coordinated or operated as part of a single scheme to extract funds from VCR through fictitious vendor payments, Ms. Prescott stated that she could only speak to CDC and denied coordinating with Mr. Daskine regarding GSC or SPS invoices. She stated she did not have visibility into the invoicing practices of GSC or SPS and was not involved in the approval of purchase orders for those entities.
Ms. Prescott was asked whether she was aware that, across all three entities, the investigation team had identified forty-seven (47) fictitious purchase orders totaling $1,830,000, broken down as follows: $812,400 attributable to GSC, $587,600 attributable to CDC, and $430,000 attributable to SPS. Ms. Langford objected to the use of the word "fictitious" to characterize the purchase orders, stating that the characterization was a conclusion the investigation team had drawn and that Ms. Prescott was not in a position to adopt. However, Ms. Langford permitted Ms. Prescott to confirm that she was aware of the aggregate dollar figure, as that information had been shared with her during the first interview on October 11, 2023.
V. Revenue-Recognition Overstatement — Mechanics and Prescott's Role
A. Timeshare-Interest Sales Process at VCR
Ms. Prescott was asked to describe the standard sales process for timeshare interests at VCR, focusing on the two properties at issue: Coral Dune Resort & Residences (Phase III) and Palmetto Bluff Club (Phase II).
Ms. Prescott described a multi-step process in which a prospective purchaser is first identified through VCR's marketing and sales operations, typically during a scheduled property tour or sales presentation. Upon expressing interest in purchasing a timeshare interval, the purchaser signs a purchase agreement and submits a deposit, typically equal to ten percent (10%) of the total purchase price. The purchase agreement is executed by the purchaser and a VCR sales representative.
Ms. Prescott confirmed that, under Florida Statute § 721.10, a purchaser of a timeshare interest is entitled to a ten (10) calendar-day rescission period, commencing on the later of the date of execution of the purchase agreement or the date on which the purchaser receives all required disclosure documents. During this rescission period, the purchaser has the right to cancel the purchase and receive a full refund of the deposit. The rescission right is non-waivable under Florida law.
Ms. Prescott further confirmed that, under Accounting Standards Codification Topic 606 ("ASC 606"), Revenue from Contracts with Customers, and under VHG's stated accounting policies as set forth in the company's annual report and internal accounting-policy manual, revenue from timeshare-interest sales should be recognized only upon expiration of the rescission period — that is, at the point at which the sale is no longer subject to cancellation by the purchaser and the performance obligations have been satisfied. Prior to the expiration of the rescission period, the deposit should be recorded as deferred revenue (a liability) rather than as recognized revenue.
Ms. Prescott confirmed that VCR's rescission rate — the percentage of timeshare-interest purchase agreements cancelled by purchasers during the rescission period — during the investigated period (Q3 2022 through Q2 2023) was approximately 14.3%. She acknowledged that this rate was higher than the industry average of approximately 11%, as reported in the American Resort Development Association's most recent annual survey. When asked whether the elevated rescission rate was itself a source of concern, Ms. Prescott stated that it had been discussed at division meetings but that it was attributed to the broader economic environment and rising interest rates.
B. Premature Revenue Booking
Ms. Prescott was asked to explain the practice of recording timeshare-interest deposits as completed-sale revenue upon signing of the purchase agreement, rather than upon expiration of the ten-day rescission period required under ASC 606 and VHG's accounting policies.
Ms. Prescott acknowledged that VCR's finance team, under her direction, booked deposits as recognized revenue at the time of contract execution — that is, on the date the purchase agreement was signed and the deposit received — rather than deferring recognition until the rescission period expired.
She initially characterized this practice as a "timing difference" that she believed would "wash out" in subsequent quarters. She explained her reasoning as follows: because the majority of purchase agreements were not rescinded, she viewed the premature recognition as accelerating, by only ten days, revenue that would ultimately be recognized in the same quarter. She stated that she did not believe the practice had a material impact on VCR's quarterly results.
When confronted with the data demonstrating that the overstatement did not in fact "wash out" but instead persisted and rolled forward from quarter to quarter, Ms. Prescott adjusted her characterization. The investigation team presented evidence showing that rescission reversals — adjustments to back out revenue from contracts that were subsequently cancelled — were not processed contemporaneously with the rescission events but were instead deferred to the following quarter. This deferral created a compounding effect in which each quarter's revenue included not only premature recognition of new deposits but also the residual overstatement carried forward from the prior quarter's unreversed rescissions. Ms. Prescott acknowledged, upon reviewing this data, that the practice created a "persistent gap" between reported revenue and revenue that should have been recognized under ASC 606.
Ms. Prescott was walked through the quarter-by-quarter overstatement figures compiled by the investigation team and Crestline Forensic Advisory:
Ms. Prescott reviewed the figures and did not dispute them. She confirmed that she was aware of the general magnitude of the overstatement, though she stated she had not personally compiled the analysis in the form presented.
Ms. Prescott confirmed that the $9.8 million figure in Q1 2023 was the specific amount that had been flagged by Hargrove, Steen & Aldrich LLP ("HSA"), VHG's independent registered public accounting firm, during their interim review of VCR's financial results for the quarter ended March 31, 2023. She confirmed her awareness that the HSA interim review findings led to the June 19, 2023 communication from the HSA engagement team to VHG Chief Financial Officer Thomas Rhett Griffith and Audit Committee Chair Diane Kowalski, in which HSA identified a potential material weakness in VCR's internal controls over financial reporting relating to revenue recognition for timeshare-interest sales.
C. Direction and Knowledge
Ms. Prescott was asked who directed or authorized the premature revenue-recognition practice at VCR. After conferring with Ms. Langford, Ms. Prescott stated that the practice was "consistent with how VCR had historically reported" and that it predated her assumption of the VP Finance role. She did not identify when the practice had originated or who had initially implemented it. However, she acknowledged that Garrett W. Daskine, as Division President of VCR, was aware of the approach and approved it. She stated that Mr. Daskine reviewed VCR's quarterly financial results prior to submission to VHG corporate for consolidation and that the premature recognition was reflected in the numbers Mr. Daskine reviewed.
Ms. Prescott was asked whether she had brought the issue to the attention of VHG corporate finance or the CFO at any time. She stated that she did not. She explained that VCR's financial reporting was "handled at the division level" and that division-level results were submitted to VHG corporate finance for consolidation without detailed review by corporate of underlying accounting methodologies. She stated that VCR's finance team had autonomy over the division's accounting practices, subject to compliance with VHG's general accounting-policy manual.
When asked whether she understood that the premature recognition of timeshare-interest deposits as revenue — before the expiration of the statutory rescission period — was inconsistent with ASC 606 and VHG's own accounting policies, Ms. Prescott stated that she "believed there was a reasonable basis" for the practice at the time. She referenced what she described as "practical considerations" related to the timing of sales events and the volume of transactions being processed. She acknowledged, however, that in hindsight the practice was "not the correct approach" and that revenue should have been deferred until the rescission period expired.
Ms. Prescott was asked whether the escalation in the overstatement from $4.7 million in Q3 2022 to $9.8 million in Q1 2023 was intentional — that is, whether deliberate steps were taken to increase the magnitude of the overstatement over time. Ms. Prescott stated that the increase reflected higher sales volume at Coral Dune Resort & Residences Phase III, which launched in Q4 2022 and experienced a significant ramp-up in contract activity during Q1 2023. She denied that there was a deliberate effort to inflate the overstatement and characterized the growth as an organic consequence of applying the same (admittedly incorrect) accounting practice to a larger volume of transactions.
Ms. Prescott was asked whether the revenue-recognition practice was connected to internal performance targets or bonus calculations tied to VCR's quarterly revenue. Ms. Prescott conferred with Ms. Langford before answering. She acknowledged that VCR division management bonuses were tied, in part, to quarterly revenue targets established by VHG corporate as part of the annual budgeting process. She stated that meeting or exceeding quarterly revenue targets was one of several factors considered in calculating division management bonuses for Mr. Daskine, herself, and other members of VCR's senior leadership team. She denied, however, that the connection between the revenue-recognition practice and bonus calculations was a motivating factor for her personally. She stated that her decisions regarding revenue recognition were based on what she believed to be appropriate accounting treatment at the time.
D. Impact on VHG Consolidated Financials
Ms. Prescott was presented with the investigation team's analysis of the impact of the FY 2022 revenue-recognition overstatement on VHG's consolidated financial statements. The analysis focused on the combined overstatement for Q3 and Q4 2022, totaling $10.8 million, as those quarters fell within the fiscal year for which VHG filed its most recent annual report on Form 10-K.
At VHG's effective tax rate of 24.3%, the after-tax income overstatement attributable to the VCR revenue-recognition practice for FY 2022 was approximately $8.17 million. This figure represented approximately 5.74% of VHG's reported consolidated net income of $142.3 million for FY 2022, a level that the investigation team has assessed as potentially material under both quantitative and qualitative materiality frameworks.
The analysis also noted that VCR's FY 2022 revenue as reported was $438.7 million, representing approximately 23.46% of VHG's consolidated revenue of $1.87 billion. VCR was thus a significant contributor to VHG's top-line results, and errors in VCR's revenue recognition had a correspondingly significant impact on the consolidated financials.
Ms. Prescott stated that she had not personally calculated the impact of the VCR overstatement on VHG's consolidated financial statements. She stated that her focus had been on VCR's division-level reporting and that she had not considered the downstream effect of VCR's revenue figures on VHG's consolidated results, including the implications for VHG's SEC filings.
VI. Relationship with Garrett Daskine and Ryan Serrano
A. Daskine's Direction
Ms. Prescott was asked about the nature and frequency of her communications with Garrett W. Daskine regarding VCR's financial reporting and operations. She described a pattern of regular weekly meetings, typically held on Monday mornings, at which VCR's senior management team reviewed operational and financial performance. She stated that she also communicated with Mr. Daskine frequently by email and telephone throughout the week regarding financial matters, including revenue projections, expense management, and capital-improvement budgets.
Ms. Prescott stated that Mr. Daskine was "very focused" on quarterly revenue targets and that meeting or exceeding the projections submitted to VHG corporate was "a priority" for the division management team. She stated that Mr. Daskine monitored revenue performance closely and expected the finance team to provide updated forecasts on a weekly basis during peak sales periods.
When asked whether Mr. Daskine specifically directed her to book timeshare-interest deposits as completed-sale revenue prior to the expiration of the rescission period, Ms. Prescott stated: "He expected the numbers to reflect the business we had closed. He didn't get into the accounting details." At this point, Ms. Langford intervened to note for the record that Ms. Prescott was not conceding that Mr. Daskine gave a specific directive to implement the premature revenue-recognition practice. Ms. Langford stated that Ms. Prescott's answer described Mr. Daskine's general expectations regarding financial reporting and should not be construed as an admission that a specific instruction was given.
Ms. Prescott was asked whether Mr. Daskine was aware that the practice of booking deposits as revenue prior to the expiration of the rescission period was inconsistent with ASC 606. She stated that she did not know what Mr. Daskine understood about accounting standards or whether he had independently assessed the practice against ASC 606 or VHG's accounting-policy manual. She stated that her communications with Mr. Daskine regarding revenue recognition focused on the dollar amounts reported, not on the underlying accounting methodology.
B. Serrano's Role
Ms. Prescott confirmed that Ryan Mateo Serrano, in his capacity as VCR Controller, was responsible for generating purchase orders within VCR's procurement system and for processing vendor payments through VCR's accounts-payable function. She stated that Mr. Serrano reported to her in the VCR finance organizational structure.
Ms. Prescott stated that she was aware that Mr. Serrano created purchase orders for CDC — the entity she owned — and that she approved some of those purchase orders. She stated she could not recall with specificity how many of the CDC purchase orders she personally approved, but she acknowledged her general involvement in the approval process.
When asked whether she was aware that Mr. Serrano also created purchase orders for Gulf Standard Contracting LLC and Suncoast Property Services LLC, Ms. Prescott stated that she was "aware of those vendors" in the VCR system. She characterized GSC and SPS as "Garrett's contacts," referring to Mr. Daskine, and stated that the relationships with those vendors were managed by Mr. Daskine rather than by her. She did not elaborate on the basis for her characterization of GSC and SPS as Mr. Daskine's contacts.
Ms. Prescott acknowledged that Mr. Serrano served as the registered agent for both CDC and GSC. She stated she was aware of Mr. Serrano's role as registered agent for CDC, given her ownership of that entity, but stated she had not previously been aware that Mr. Serrano also served as registered agent for GSC until the first interview on October 11, 2023.
VII. Communications with HSA and Corporate Finance
Ms. Prescott stated that she had no direct communications with William Gentry, the HSA engagement partner responsible for VHG's audit, regarding the Q1 2023 interim review findings or the potential material weakness identified in the June 19, 2023 communication from HSA to VHG. She stated that she was not contacted by Mr. Gentry or any member of the HSA engagement team in connection with the interim review and did not participate in any meetings or calls with HSA on the topic.
Ms. Prescott stated that any communications between VCR and HSA regarding revenue-recognition matters would have been handled by Mr. Serrano, in his role as VCR Controller, or through VHG's corporate finance team. She stated that Mr. Serrano served as the primary point of contact between VCR's finance function and HSA for purposes of the quarterly review process.
Ms. Prescott stated that she did not recall any communications with VHG Chief Financial Officer Thomas Rhett Griffith about VCR's revenue-recognition practices at any time prior to Ms. Prescott being placed on administrative leave on August 7, 2023. She stated that her interactions with Mr. Griffith were limited to periodic division financial reviews and budget discussions, and that the specific methodology for recognizing timeshare-interest revenue was not a topic of discussion in those interactions.
Ms. Prescott confirmed that she was not consulted in connection with VHG's filing of a Current Report on Form 8-K on August 14, 2023, which disclosed under Item 4.02 that VHG's previously issued financial statements should no longer be relied upon. She stated she first became aware of the 8-K filing through media reports.
VIII. Prescott's Awareness of SOX Obligations
Ms. Prescott was asked about her understanding of VHG's obligations under Sections 302 and 404 of the Sarbanes-Oxley Act of 2002 ("SOX") as they pertained to VCR's internal controls over financial reporting.
Ms. Prescott stated that she understood generally that VHG, as a publicly traded company, was required to maintain effective internal controls over financial reporting and that VHG's Chief Executive Officer and Chief Financial Officer were required to certify the financial statements included in VHG's periodic reports filed with the SEC. She stated she was familiar with the concept of management's assessment of internal controls and knew that HSA provided an opinion on the effectiveness of those controls as part of the annual audit.
When asked whether she understood that the revenue-recognition practices she implemented at VCR could constitute a material weakness in VHG's internal controls over financial reporting, Ms. Prescott stated that she "did not think of it in those terms" at the time. She stated that she viewed the revenue-recognition approach as a division-level accounting practice and did not consider its implications for VHG's SOX compliance or the certifications provided by VHG's CEO and CFO.
Ms. Prescott was asked whether she was aware of VHG's whistleblower or ethics-reporting procedures, including any confidential reporting hotline maintained by VHG for the reporting of potential accounting irregularities or ethical concerns. She stated that she was generally aware that VHG maintained such a hotline and that the existence of the hotline was referenced in VHG's code of conduct, which she had reviewed. She stated, however, that she had never used the hotline and did not consider reporting the revenue-recognition practices through that channel or any other internal reporting mechanism.
IX. Prescott's Administrative Leave and Post-Leave Contacts
Ms. Prescott confirmed that she was placed on administrative leave from her position as VP Finance of VCR on August 7, 2023. She confirmed that Garrett W. Daskine and Ryan Mateo Serrano were also placed on administrative leave on the same date.
Ms. Prescott stated that she has had no contact with Mr. Daskine since being placed on administrative leave. She stated she has not communicated with Mr. Daskine by telephone, email, text message, or any other means, and has not met with Mr. Daskine in person.
When asked whether she had communicated with Mr. Serrano since being placed on administrative leave, Ms. Langford instructed Ms. Prescott not to answer questions about communications with other subjects of the investigation, stating that Ms. Prescott's communications with Mr. Serrano — to the extent any had occurred — could implicate privilege and other considerations that Ms. Langford wished to evaluate before permitting a response.
Ms. Prescott stated that she has retained all documents in her possession, custody, or control — including electronic documents, emails, text messages, physical files, and other materials — as required by the document-preservation notices issued by VHG and Calderwood & Harkness LLP on July 24, 2023. She confirmed that she has not destroyed, deleted, altered, or discarded any documents since receiving the preservation notices.
X. Closing and Procedural Notes
At approximately 1:45 p.m., Mr. Quinn concluded the interview. The interview had lasted approximately three hours and forty-five minutes, including one fifteen-minute break taken at approximately 11:45 a.m.
Mr. Quinn reminded Ms. Prescott of her continuing obligation to preserve all documents in her possession, custody, or control that are potentially relevant to the investigation, consistent with the preservation notices previously issued. He also reminded Ms. Prescott of her obligation to refrain from discussing the substance of the interview — including the topics discussed, the questions asked, and the answers provided — with any VHG employees, officers, directors, or other persons, other than her personal counsel, Ms. Langford.
Ms. Langford reserved the right to provide additional information or clarification on behalf of Ms. Prescott following the interview. Ms. Langford stated that she would review the topics covered in the session and determine whether there were any matters on which Ms. Prescott wished to supplement or clarify her responses.
Ms. Langford did not indicate whether Ms. Prescott would be available for any further interview sessions if requested by the investigation team.
The interview was not audio- or video-recorded. This memorandum was prepared by Steven Hollander from contemporaneous handwritten notes taken during the interview. The memorandum was reviewed for accuracy and completeness by Liam Donahue and Howard Quinn.
XI. Assessment and Next Steps (Internal Work Product)
This section constitutes attorney work product prepared in anticipation of litigation and reflects the mental impressions, conclusions, and legal theories of counsel. This section should not be disclosed outside the Calderwood & Harkness investigation team without prior approval of the Responsible Partner.
CDC and Fictitious-Vendor Scheme. Ms. Prescott's acknowledgment that she is the sole shareholder of CDC, coupled with her inability to identify any legitimate work performed by CDC for any client (including VCR), significantly strengthens the investigation team's findings regarding the fictitious-vendor scheme. The absence of any written contracts, the inability to identify any deliverables, and the acknowledgment that no other clients existed are all consistent with the conclusion that CDC was a shell entity used to extract funds from VCR through fabricated invoices. Ms. Prescott's admission that Mr. Serrano generated the invoices and purchase orders, while she "provided input," establishes her direct involvement in the invoicing mechanics.
Disposition of CDC Funds. Ms. Prescott's refusal, on Ms. Langford's advice, to address the ultimate disposition of CDC funds is noted. This refusal is not unexpected given the personal criminal exposure that such testimony could create. However, the Crestline forensic tracing analysis already documents the flow of CDC funds to Ms. Prescott's personal credit-card accounts and other personal expenditures with sufficient specificity to support the fictitious-vendor finding. The refusal does not create a gap in the investigation's factual record on this point.
Revenue-Recognition Overstatement. Ms. Prescott's characterization of the premature revenue-recognition practice as a "timing difference" that would "wash out" is inconsistent with the evidence showing a persistent, rolling overstatement across four quarters totaling $26.4 million. The evidence demonstrates that the overstatement did not self-correct because rescission reversals were systematically deferred to the following quarter, creating a compounding effect. The elevated rescission rate of 14.3% (versus an 11% industry average) made the gap between premature recognition and actual collectible revenue especially predictable and significant. Ms. Prescott's concession that the practice was "not the correct approach" and that it created a "persistent gap" undermines the "timing difference" defense. Her acknowledgment that division management bonuses were tied to quarterly revenue targets — combined with her denial that this created a motive — should be evaluated in light of the totality of the evidence.
Daskine's Role. Ms. Prescott's statements regarding Mr. Daskine's role are somewhat guarded, likely reflecting Ms. Langford's strategic advice against making statements that could be construed as either fully cooperating with the investigation or definitively implicating Mr. Daskine. Nevertheless, Ms. Prescott's characterization of Mr. Daskine as someone who "expected the numbers to reflect the business we had closed" and who was "very focused" on quarterly revenue targets, combined with her acknowledgment that Mr. Daskine was "aware of and approved" the revenue-recognition approach, is consistent with the emerging picture from other evidence that Mr. Daskine directed the overall scheme while Ms. Prescott implemented the accounting mechanics. The interview did not elicit new information about Mr. Daskine's connection to GSC or SPS beyond what was already known.
Next Steps. The investigation team recommends the following actions:
1. Crestline Coordination. Coordinate with Crestline Forensic Advisory LLC (Douglas Reinhardt, lead engagement partner; Priya Venkatesh, senior manager) to finalize the fund-tracing analysis for CDC and cross-reference the CDC analysis with the broader shell-entity analysis memorandum currently in preparation, which is targeted for completion by November 28, 2023.
2. Serrano Interview. Consider whether a further interview of Ms. Prescott is warranted following the second interview of Mr. Serrano, which is anticipated in early December 2023 pursuant to the cooperation agreement executed by Mr. Serrano on November 15, 2023. Information obtained from Mr. Serrano may illuminate additional details regarding Ms. Prescott's involvement in the CDC invoicing scheme and her coordination (if any) with Mr. Daskine regarding GSC and SPS.
3. Langford Communications. Monitor whether Ms. Langford provides any supplemental information or clarification on behalf of Ms. Prescott, as reserved at the close of the interview.
4. Post-Leave Communications. Ms. Langford's instruction to Ms. Prescott not to answer questions regarding post-leave communications with Mr. Serrano warrants follow-up. If Mr. Serrano's cooperation interview reveals communications between Ms. Prescott and Mr. Serrano during the administrative-leave period, this could raise concerns about potential witness coordination or obstruction that would need to be assessed.
Prepared by: Steven Hollander, Associate, Calderwood & Harkness LLP
Reviewed by: Liam Donahue, Senior Associate, Calderwood & Harkness LLP Howard Quinn, Partner, Calderwood & Harkness LLP
Distribution: Restricted to Calderwood & Harkness LLP investigation team members with a need to know. Copies to be provided to the Audit Committee of the Board of Directors of Verimark Hospitality Group Inc. upon request of the Audit Committee Chair.
This memorandum and all attachments are PRIVILEGED AND CONFIDENTIAL and are protected by the attorney-client privilege and the attorney work-product doctrine. This memorandum was prepared by counsel in connection with the provision of legal advice to the Audit Committee of the Board of Directors of Verimark Hospitality Group Inc. and in anticipation of litigation. No portion of this memorandum may be disclosed, distributed, or reproduced without the prior written authorization of Howard Quinn, Calderwood & Harkness LLP.
PRIVILEGED AND CONFIDENTIAL — ATTORNEY-CLIENT PRIVILEGE / ATTORNEY WORK PRODUCT
Quarter | Period Ending | Revenue Overstatement
Q3 2022 | September 30, 2022 | $4.7 million
Q4 2022 | December 31, 2022 | $6.1 million
Q1 2023 | March 31, 2023 | $9.8 million
Q2 2023 | June 30, 2023 | $5.8 million
Aggregate | $26.4 million

PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGE / ATTORNEY WORK PRODUCT

MEMORANDUM OF INTERVIEW

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