$2 million of taxpayers’ money lost on poorly conceived loan to Gold’s Gym

Losing more than $2 million of taxpayers’ money in a poorly conceived loan to a private business isn’t sitting well with Hawthorne City Council members and some residents.The council decided to table a proposed settlement that offered only a tiny fraction of the money owed the city, in a 4 to 0 vote on Tuesday.In the meantime, council members are seeking answers for why the city’s leaders decided to loan a private gym $2.5 million in 2004 without requiring any collateral for repayment.”This was reckless,” Councilwoman Angie English said. “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.”The loan came from federal funds given to the city for community development purposes. It was awarded to Muscle Improvement Inc. in 2004 to build a Gold’s Gym on West 147th Street, with company owner Abe Tavera promising to repay it. At the time, city leaders believed a new gym would spur business development in the area. But, two years after the gym opened in 2008, it filed for Chapter 11 bankruptcy.The city received only $450,000 back in the eight years since the generous low-interest loan was given. The gym finally closed earlier this year.The settlement agreement that the council decided to wait to consider would repay the city $360,000 over the next five years. But that sum could dwindle to zero if Muscle Improvement files for Chapter 7 bankruptcy, said City Attorney Kunle Aderonmu.”If the city’s lucky and everything goes great, the city would get $360,000 in five years,” Aderonmu said. “But, if it fails and they go into Chapter 7 bankruptcy, the city doesn’t get any money.”Mayor Danny Juarez recused himself from Tuesday’s vote because he personally attempted to do an audit of the gym in 2010. He has argued for years that the gym’s owner unfairly benefited from a personal relationship with former city leaders.”Why didn’t the city require Gold’s Gym corporate to secure the loan?” Juarez asked staff members on Tuesday. “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?”Tavera’s assets were thoroughly examined in a two-year bankruptcy case that sought repayment for his debts, according to court records. City documents report that his home is heavily mortgaged, and sale of several properties he owns would only cover taxes and would not generate money for creditors.However, Tavera owns a boat repair yard in Redondo Beach that generates about $144,000 in annual income, and Juarez asked that the city investigate whether it can claim those funds.Tavera owns two other Gold’s Gym locations in Commerce and Redondo Beach, but both are heavily in debt.Aderonmu said city staff plans to meet to discuss the best way to investigate the loan’s history.Jerry Jamgotchian, a local business owner who has challenged this loan for years, asked the city to file a civil lawsuit and depose the city’s previous leadership. He also blamed former city leaders for similarly losing money to businesses, including a former trash and a towing company that together did not pay about $2 million they owed in city fees.”This was a result of problems caused by pay-to-play politics and that’s all it was,” said Jamgotchian. “This is one deal that ranks with the H&C Disposal fiasco and the S&W Tow fiasco.”