Howard P. Magaliff accused Marlaina Koller of Yonkers of corporate waste and fraud, in an adversarial action filed June 28 in U.S. Bankruptcy Court in White Plains.
Koller used Allways East Transportation “as her own personal piggy bank,” the complaint states, “diverting millions of dollars from the (company’s) accounts for herself and other insiders.”
The complaint also states that the company’s books “were left in shambles,” requiring officials to sift through limited records to understand its finances.
They allegedly found evidence of payments to casinos, a cemetery, family members and restaurants that appeared to have no connection to the business, as well as large cash withdrawals for which no documentation was found.
Allways East was founded in 1992 by Koller’s mother, Judith. In 2012, Marlaina, as vice president, assumed control.
She filed for Chapter 11 reorganization in 2016. By then, the company operated a fleet of 300 buses for transporting students from kindergarten through college, in Westchester and Dutchess counties. It specialized in busing special needs children and adults.
It employed 400 nonunion drivers, bus matrons, administrators and shop workers, and it leased two facilities in Yonkers and another in Fishkill.
The company had been profitable for more than 20 years, Marlaina said in declaration filed in support of the Chapter 11 petition, but it had begun to experience cash flow shortages.
She attributed the financial strain to increased insurance premiums, spending on the headquarters, greater monthly debt payments on new equipment leases, generous compensation for employees and a competitive market.
She also said she had put the business on “auto pilot” while dealing with medical issues, in the hands of a bookkeeper and lower-level administrators. During this period, she said, it became difficult to remain current on taxes, rent, insurance, leases and finance payments. Cost-cutting measures, such as layoffs and shedding unprofitable contracts, “were not enough to turn the company around.”
In late 2017, Magaliff asked the court to convert the case to Chapter 7 liquidation, citing evidence of gross mismanagement, excessive cash withdrawals and suspicious payments.
The Chapter 11 petition had claimed $3.1 million in assets and nearly $9 million in liabilities. Yet, more than $24 million in claims were filed against the company.
“The debtor’s books and records grossly understated the true financial woes,” the trustee concluded.
Claims were filed by the Internal Revenue Service for nearly $5.3 million and the New York Department of Labor for $664,000.
From 2013 to 2016, Allways East cashed $18.2 million in checks through Wink Check Cashing Corp. Some of the cash was used for payroll, the trustee states, but more than $10 million was not accounted for.
Another $1.7 million was withdrawn from company bank accounts, without identifying the use. More than $98,000 was withdrawn on ATM cards used at casinos in Yonkers, Aruba and Atlantic City.
Marlaina allegedly used company credit cards for personal and family expenses at Victoria’s Secret, Sephora, airline flights and meals.
Company bank account transfers included $197,000 to Wells Fargo Home Mortgage, $22,000 to New York Life Insurance and $13,000 to Ferncliff Cemetery for a burial plot.
When the company was insolvent and not paying vendors and tax authorities, the trustee alleges, Marlaina paid excessive compensation to company insiders: $1.7 million to her mother, Judith, who owned the company but had “delegated all of her duties to Marlaina,” $410,700 to herself and $300,000 to her brother, Edward.
More than $11.8 million in cash is not accounted for on the books and records.
In 2017, Marlaina incorporated Phoenix Transportation Services. Allways East sold contracts and vehicles, and transferred $74,000 “that were not (Allways East) obligations,” to the new company.
The complaint charges breach of fiduciary duty, fraud, conversion of property, unjust enrichment and corporate waste.
“The trustee is entitled to recover from Marlaina, for the benefit of the debtor’s (Allways East) estate … not less than $24,234,194.”
The adversarial action is one of 38 that Magaliff has brought against insiders, casinos and other recipients of the company’s assets.
The complaint was filed by Jeffrey Traurig, of Archer & Greiner PC, Manhattan, as special litigation counsel for Magaliff.