Thursday, April 26, 2012

Settling For Nothing: Fertitta Enterprises Gets Off With Slap on The Wrist For Bankruptcy Fraud

By: Rich Bergeron

      It always amazes me to see how much history repeats itself. Nearly the same scene that's depicted in the photo above unfolded at the Fertitta-owned Red Rock Resort and Casino recently. This time around, the banquet featured the entire current crop of Xyience employees celebrating a new settlement agreement to end the company's bankruptcy battle with the trustee's counsel Jon Backman.

    The settlement is disappointing when you look at how long the proceedings dragged on and how much promise there seemed to be in taking the Fertittas to trial. My own relationship with Mr. Backman was sometimes contentious. I often asked him what could be done for the shareholders.  He always told me they would probably recover very little or next to nothing. I pressed my own motion to suspend the bankruptcy before Backman took the case on for Trustee David Herzog.

     There were times Backman seemed to be doing whatever it took to seek justice while at other times I saw the stereotypical lawyer in him. Eventually I grew to understand he was in a tough position, but he amassed a catalog of evidence that began to build momentum leading up to the trial. He won a sanctions motion that he now has to scrap his rewards for to get a lowball settlement approved. Apparently, Backman didn't want to take his chances fighting the case in court, and he eviscerated his chances to prove that case in the settlement motion.

     Reading some of those sentences came as a real shock to me. The language had the tone of someone writing with a gun to his head. I attended a hearing in Las Vegas where Backman wiped the floor with his opposition: Attorney Greg Garman. The tide seem to be turning in the case, and my own experience with Garman led me to believe he really had no idea why his clients should have to pay for stealing the company out from under the shareholders. He knew the law, but he he didn't seem to know the case that well. He certainly didn't grasp the real circumstances that made this bankruptcy a borderline criminal conspiracy.

     Paying out anything to the trustee came at a price for the Fertittas, I suppose. I wouldn't doubt the negotiations featured discussions on how the settlement motion would be written to absolve the Fertittas and their employees of all possible implications of guilt or culpability. Just like the gangsters in suits depicted in the photo above, the Fertitta brothers have to appear respectable and spotless in the public eye while running their rackets behind the scenes.

   Mr. Backman seemed ready for trial recently, and he let me know at one point that I'd probably read about it in the papers before he could tell me how it was going. He didn't quite get that one right, because I'm the one writing about what happened rather than reading about it anywhere. If I weren't around, the Fertittas might have slipped this one right under the radar. That's unfortunate, but it's the world we live in. Thanks to people who continue to look the other way and let crooks be crooks, crime really does pay for gangsters in business suits these days. Just take a few hours and sort through this blog someday. Research the Fertitta bloodline. 50 cent was over at Floyd Mayweather's gym Tuesday being a ham for the cameras, but if he really wanted to find out how to be a gangster he should have been talking to Lorenzo and Frank Fertitta III. From their machine gun-toting security details to their stubble-ridden tough-guy mugs, these guys are the picture of organized crime in Las Vegas evolved to a totally new dimension.

   It really is depressing to see a company stolen right out from the investors who built it, but even more disgusting is how the Fertittas are planning to fold Xyience into Zuffa. They are literally and figuratively driving it like they stole it.

Russell Pike (parody)
     The company's current PR staff even made it a point to disavow any connection to the company's original founder, Russell Pike, when Pike was recently convicted of Tax Evasion to the tune of owing an estimated $1.5 million to Uncle Sam. Pike will be sentenced in July. By then, the Fertittas will be making millions emulating his original model of doing business: sponsor the UFC's fighters and the UFC to sell more low-rate supplements and other assorted overpriced items. The only thing they didn't do that Pike did was seek investors. The Fertittas and their insider friends wanted all the spoils for themselves. The UFC brass wanted a supplement company tied to the organization for a long time. Now they have one.

Xyience "Round 2" will flash the new marketing model at us all on free television soon by posting the Xyience logo back in the middle of the mat once again on May 5th for the UFC on Fox 3 card. It will be the first time the company's held that position on the mat since I helped expose how the Fertittas created a false bidding war for the middle of the mat space. Xyience defaulted on a multi-million dollar payment plan for that ad space while they were steaming toward bankruptcy, and the Fertittas had to know the company couldn't meet the terms of such a deal when they put ink to paper on it.

Money coming out one Fertitta pocket and going back into another would be a common theme through the case, and I kept finding new areas where the Fertittas found ways to pay themselves without any intention of their moves ever being made public. Yet, even when I exposed much of this behavior, they managed to get away with it all and did not even have to suffer a real civil penalty. These guys have become the kings of insider dealing, influence peddling, and lawyering up to beat the band.

      Lorenzo and Frank Fertitta managed to erase billions in Station Casinos debt through the bankruptcy courts, and they bought all their over-leveraged properties back for a bottom dollar bid at the tail end of the process. They used Xyience as a trial run, an experiment of sorts. It wasn't long before the lesson learned came to be: bankruptcy can be extremely profitable if you play the game correctly. I arrived in Vegas on my last trip out during a time period where Station Casinos was still on the way out of bankruptcy. They were advertising a car a day give-away. Later on I read some reorganization paperwork that showed Station Casinos simply defaulted on the payments to the dealerships involved. The dealerships no doubt wrote off the losses as part of their insurance program, and the folks with the free cars made out like bandits. It's the kind of magic that can only happen in Las Vegas.

This is why the Fertittas themselves are very rich individuals who always make the Forbes list. This is what business-suited gangsters do. There's nothing better than selling something you got for free. As casino owners, the Fertittas must maintain a resolute appearance as upstanding young men who are law-abiding citizens. Billions of dollars could literally be at risk if they were ever caught up in any kind of criminal charges. Bankruptcy fraud seemed like a fair charge when I first levied it against them with a motion to suspend the bankruptcy. Their juice and my lack of an attorney led to a judge paying my motion no heed. The Fertittas steamrolled the company through bankruptcy with relative ease. It was like a bank robbery broadcast on national television where a million tips come in because everyone knows the robbers. Yet, nobody gets cuffed in the long run. Nobody is told to pay for their transgressions or provide any relief to those who suffered through these long years hoping something tangible would come out of the court process.

 I currently have a motion seeking $150 million in relief for sanctions against a wide array of parties implicated in the bankruptcy. There has never been an appropriate hearing on that motion, and it would require a ton of testimony to do it right. It's not a task I take lightly, and it would be a gargantuan effort to bring that hearing to fruition. Still, I am determined to do what it takes to play my part in this and provide whatever shred of justice I can.


Xyience Criminal History said...

Rich, I admire your determination, but what has gotten lost in your reporting, is the biggest con-man in all of this Russell Pike. We were duped by Pike and Ronald Solomon into investing into Xyience. Little did we know, was that Russell was taking investor's money and laundering it through friends and family's pockets so he could live the high life. The government finally caught up to him and he will go to prison once again, and the rest of his "gang" are right behind him. We have talked to many government agencies and Russell Pike is only the first to go down. Zizzazz and Internet Business Group are all companies that Pike uses to steal money from investors with his slick talk. I have written off my bad investment into Xyience a long time ago. My redemption is seeing Pike in prison and Solomon right behind him.

Anonymous said...

Rich, do you think that one or more of the people trying to bring the Fertittas to justice have been in fear for their lives ? My feeling all along is that it will take a major RICO investigation, complete with FBI infiltration and wiretaps, to bring down the Fertitta crime family. Until then, Nevada is truly the wild west, with nearly useless securities law, corrupt law enforcement and a complicit media.

Writerfortruth said...

I do realize Pike did a lot of damage. I actually talked to some of the investigators working on his IRS case and always knew he would find his way back to prison in time. When the Fertittas bought out Xyience I switched my attention to their behavior and the bigger picture, but when the book comes out I will certainly not neglect to tell Pike's part of the story.

Mike, I'm asked all the time if I'm afraid I'll "get whacked" and always tell people no. The Fertittas just don't do that anymore, and the mob doesn't execute people much anymore either. These days you can still get killed if you're actually in the mob and screw up, but due to the heat a murder investigation brings most organized crime leaders don't advocate murdering people outside the organization. At least not people who aren't already crooks. Las Vegas is a corporate wonderland for the Fertittas. They have so much pull they can do whatever they want and step on all the toes of all the little people they want to make a buck. It's sad but true. The FBI went after JP Morgan for $2 billion when the Fertittas have done more financial damage than that, so that should tell you something about the hopes for prosecution of the Fertittas for anything.

arlene said...

Burried in the desert. Lol

arlene said...

Burried in the desert. Lol

arlene said...

Burried in the desert. Lol

arlene said...

Burried in the desert. Lol