Flagship operator charged with fraud

By Laura Elder
The Daily News

Published March 3, 2006

GALVESTON — In the first case of its kind in the nation, a federal grand jury Thursday returned a 39-count indictment charging the operator of Galveston’s Flagship Hotel with defrauding federal hurricane lodging programs of at least $232,000.

The indictment charges Daniel Yeh, 52, with 22 counts of wire fraud and 17 counts of filing false claims against the Federal Emergency Management Agency, U.S. Attorney Chuck Rosenberg said in a written statement.

Yeh’s attorneys issued a statement Thursday saying the federal government sought the indictments despite knowing Yeh was recovering from brain surgery performed Feb. 21.

Yeh’s attorneys also said the Flagship Hotel relied on an executive, who was no longer with the hotel, for guidance on FEMA billing after hurricanes Katrina and Rita last year.

“This indictment was sought despite the fact the government was made aware of Daniel Yeh’s lack of mental competency from frontal lobe brain damage as a result of three brain tumors,” according to the statement, issued by island attorney J. Michael Fieglein and Houston attorney Robert S. Bennett.

“When the matter was brought to the management’s attention, and relying on the amount given to the hotel by the government agents, immediate reimbursement was made,” the attorneys wrote.

After Hurricane Katrina devastated Louisiana and Mississippi on Aug. 29, leaving thousands homeless, the federal government funded a program allowing some evacuees to stay in hotels free while FEMA grant programs reimbursed the hotels.

Hundreds sought lodging in Galveston.

The Flagship, 2501 Seawall Blvd., enrolled in the FEMA programs after Hurricane Katrina and continued to participate after Hurricane Rita, which made landfall Sept. 24, according to the indictment.

The indictment alleges that from Oct. 1 to Dec. 15, Yeh took over the task of billing the federal lodging programs online.

Yeh is accused of filing fraudulent reimbursements claims for:

• Rooms in the names of hotel employees who previously stayed at the Flagship free as part of their employment arrangements.

• Rooms in the names of supposed hurricane evacuees on dates when those rooms were occupied by paying hotel guests with different names.

• Rooms occupied by friends, relatives and employees of his wife’s business, who were recruited to stay at the hotel, but were not evacuees.

• Rooms in the names of supposed hurricane evacuees who never had rooms at the Flagship Hotel.

• Rooms in the names of supposed hurricane evacuees on dates when those rooms were unoccupied.

• For multiple rooms in the name of a single guest when the guest occupied fewer rooms than billed.

Each of the 22 wire fraud counts carries a punishment of up to 20 years imprisonment and a fine of up to $250,000. Each of the 17 false claims counts carries a punishment of up to five years imprisonment and a fine of up to $250,000.

Yeh is best known on the island for long feuds with the city of Galveston about Flagship Hotel.

The city built the Flagship in the 1960s as a show of confidence after Hurricane Carla.

Yeh took over operations in 1990. Lease amendments to various companies extended Yeh’s operational control of the property to 2031. The city later contended in legal battles that Yeh’s lease expired in 2006, claiming subsequent amendments were void because they exceeded a statutory 40-year limit on municipal leases.

Unhappy with the condition of the Flagship and its 1,000-foot pier, the city a few years ago began searching for a new manager of the property.

In November 2003, Houston-based Landry’s Restaurants, which operates many tourists attractions and hotels on the island, paid the city $500,000 for the property. Landry’s has said it plans to invest millions of dollars to makeover the hotel.

Landry’s and Yeh became embroiled in bitter litigation. In July 2004, Yeh’s company, Flagship Hotel Ltd., filed for Chapter 11 bankruptcy, complicating matters. But in December, Landry’s and Yeh’s company reached an agreement. The settlement was confidential, but allows Landry’s to eventually take over the property.

The federal case against Yeh is set to be prosecuted in the U.S. District Court in Galveston, according to the U.S. Attorney.