Hawthorne Gives Unsecured Loan to Failed Gym
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UPDATED: Oct 9, 2012
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Hawthorne City Council and many city residents are up in arms over the lending of an unsecured loan to a private business.
In 2004, city leaders decided to give an unsecured loan—which is a loan without any collateral—worth $2.5 million to a private gym.
“This was reckless. In my opinion I believe this was something that was criminal. I also believe this is something that was initiated with no checks and balances. It’s unbelievable to me to secure a loan with no collateral,” said Councilwoman Angie English in an interview with the Daily Breeze.
The funds for the loan came from federal funds that were given to the city for community development purposes. The unsecured loan was awarded to build a Gold’s Gym. City leaders—at the time—believed a new gym would generate business development in the area, bringing in more tax revenue and commerce. Unfortunately, the gym was eventually forced to file for Chapter 11 bankruptcy in 2010, two years after it opened.
As a result, the city only received $450,000 in the years since the unsecured loan was lent due to its low interest rate. Should the Gold’s Gym mother company file for Chapter 7 bankruptcy then all future payments to the city would cease.
“If the city’s lucky and everything goes great, the city would get $360,000 in five years. But if it fails and they go into Chapter 7 bankruptcy, the city doesn’t get any money,” said City Attorney Kunle Aderonmu in an interview with the Daily Breeze.
The city’s Mayor, Danny Juarez, holds the view that the gym’s owner benefited from an unethically close personal relationship with former city leaders.
“Why didn’t the city require Gold’s Gym corporate to secure the loan? There was not adequate security to make this $2.5 million loan. Why didn’t the city have the right to take over the lease and protect their loan? Why didn’t the former city attorney protect the city?” said the Mayor in an interview with the Daily Breeze.
The city is currently investigating the Gym owner’s other businesses and assets as well as the unsecured loan’s history.