ACCESS DENIED: Fertitta Friendly Global Cash Access May Lose Arizona License

By: Rich Bergeron



Arizona's gaming authorities recently took a bold stand against a company called Global Cash Access by filing a notice of intent to deny state certification for the merchant services company, which has suspiciously tight connections with Station Casinos and Fertitta Enterprises. Most news reports about the Arizona developments barely scratch the surface and can't fully quantify the WHOLE REPORT.

The bottom line? This is a big domino to be falling at this moment in time and this juncture in the history of Station Casinos.

The timing couldn't be worse for the Fertitta family as their casino empire steams toward bankruptcy despite one extension after another given to the struggling company by the banks and lenders they owe. Now, it seems their friendly bedfellows from Global Cash Access (GCA) are in a heap of trouble, and more has been revealed through an intensive investigation into how the company was run under the control of Former GCA CEO Kirk Sanford, also a central figure in the Xyience bankruptcy scandal I have been writing about here.

I met with Kirk Sanford myself at a Times Square restaurant just prior to UFC 78 in Newark, NJ. At the time he was Co-CEO of Xyience and had just been ousted from Global Cash Access due to an emerging scandal related to casino payout discrepancies. He specifically used the term "scorched Earth" to describe his plan to bankrupt Xyience.



As it turns out from the timetable emerging in new documents, at the time of that meeting Sanford and GCA were allegedly involved in a massive mis-coding scandal as well as a scheme to defraud casinos of bonuses owed to them. Though the new paperwork does not reveal which particular casino properties GCA allegedly denied due bonuses to, clearly Fertitta Enterprises was impressed by these GCA converts for some reason, and Station Casinos extended their contract with GCA even after the scandal leaked out.

It would ultimately take a great deal of GCA Founder Karim Maskatiya's money and all of Former GCA CEO Kirk Sanford's cunning to perpetrate the Xyience bankruptcy. Karim Maskatiya's nephew Omer Sattar and former GCA executive Kathryn Lever (still with GCA to this day) also made the Xyience transition and played roles in the bankrupting of the company.

The big question I find myself asking over and over again is WHY did Fertitta Enterprises bring these GCA folks in to bankrupt Xyience? There are only two possible answers in my mind:

1.) Fertitta Enterprises officials may have been conscious of the GCA skimming operation and impressed by it, and they needed similar skills to bankrupt Xyience through the perfect group of scapegoats.

.....or.....

2.) Fertitta-owned Station Casinos was on the list of casinos GCA skimmed from, and company officials were so upset that they forced the GCA rejects to pay their penance through bankrupting Xyience for them.

Looking at the whole risk and reward setup, there's no other explanation in my mind for the GCA and Fertitta Enterprises partnership. If you go to my ENRON OF MMA PAGE you can read about why the UFC needed to keep Xyience viable long enough to get a huge loan package and create a middle of the mat bidding war for potential UFC sponsors. Yet, they also needed to make their involvement in Xyience as limited as possible so as not to raise conflict of interest eyebrows. This is why they needed a few devoted fall guys to take key positions, guys who would be really compelled to do this dirty work and take all the risks involved. Yet, why these fall guys? What made GCA so special, and why risk the backlash of hiring folks so fresh off a scandal?

Global Cash Access perhaps came to be tied to the UFC and Xyience because criminal minds think alike. Consider the fact that Frank Fertitta, Junior is the on-paper CEO of Fertitta Enterprises. Yet, Frank Junior has been kept away from Station Casinos operations by his associations in the past with known organized crime figures. The Nevada Gaming Commission would rather Frank Junior's unclean past stay buried. It is widely reported that Frank Fertitta Junior helped operate a massive Vegas skimming operation glorified in the movie "Casino."



Frank Junior's history is fascinating, but his new hobby is even more intriguing. Fertitta Enterprises may not have all that much to do with Station Casinos, but it does healthy consulting work to help other casinos get started all over the country. No matter what controversy is stirred up, the folks behind Fertitta Enterprises seem to be able to squeak unwanted developments through on technicalities wherever they go.

The Fertitta family wields incredible power and influence in the Casino industry, and it shows. Even the Fertitta-led suggestions that a pre-packaged bankruptcy of Station Casinos would be the best way to go have been met by very little criticism, if any. It is my personal opinion that the Xyience bankruptcy was a trial run for the Station Casinos pre-packaged collapse. The Fertitta family has promised to put $244 million into the reorganization pot for Station Casinos, and despite the company's struggles, Frank Fertitta III just bought a $28 million home in Orange County, CA's Emerald Bay. Station Casinos just financed one of the largest 4th of July fireworks displays in Vegas history to boot.

Don't forget things are only so bad for Station Casinos because the Fertitta Brothers went on an overzealous expansion spree resulting in too much overhead and not enough income. Also, like a teenager with his first credit card, they hid the problem by pursuing loan after loan and credit facility after credit facility. The latest estimates put the company in debt more than $5 billion.

the Arizona investigation is mind blowing as far as the conclusions that could be drawn from the associations between GCA, Fertitta Enterprises, Xyience, the UFC, and Station Casinos. This latest GCA bombshell could be the straw that broke the camel's back with Station Casinos, and it could raise some regulator eyebrows in Nevada. Ironically enough, a witness to the Xyience collapse recently informed me that the scheme to bankrupt Xyience was primarily the work of "the two Franks." This report made a great deal of sense since Frank Junior and "Frankie Three Sticks" are really consumed in many ways by the Casino industry business and lifestyle. Meanwhile, Lorenzo Fertitta has over the years been more partial to his work with the UFC and recently left Station Casinos to help Dana White expand the UFC.

Having such intimate knowledge of the casino operations, "the two Franks" should have known it if the GCA Executives were bilking them. These are two men known for their shrewd business practices and sharp minds.

So how did this whole Xyience bankruptcy plan get hatched and why did all these folks end up working together? The exact manner in which all these "usual suspects" came together under a common banner is really an unknown at this point, but their basic motivations seem plain as day now that these new GCA documents have been revealed.

It seems to me we have a classic case of "like father, like son" going on here.

Frank Fertitta Junior never went to jail for his part in casino skimming or any other organized crime endeavor he took part in over the years. Like the "Teflon Don" John Gotti, nothing stuck to Frank Junior, and he was allowed to ride off into the sunset untainted by a prison record and able to buy his first casino for just a buck as the legend is told. Frank Junior's buddies rotted in jail while he built his fortune in gaming and created a dynasty he could pass onto his sons.

Frank Fertitta III had to take the reigns at an early age when his father had no other choice but to pass the buck. Like his father, maybe Frank III devised a new-wave skim with help from GCA, or maybe he and his father muscled in on the GCA scam and took a percentage.

Either way, even a tenuous association of the Fertitta family with what looks to be a massive and purposely designed and perpetrated electronic skimming operation executed by GCA is troubling to say the least. The fact that Fertitta Enterprises would provide ousted GCA officials immediate positions in the soon-to-be-bankrupted Xyience adds more fuel to the conspiracy fire. There are a great deal of whys to be asked in this context.

Looking from the outside in, there is only one logical conclusion as to why all these entities and individuals were perpetrating this massive fraud together. It was all about the money, of course, and while all the loosely associated businesses owned by these individuals were doing well on their own, they could do better conglomerated. They would do even better than that working together under the radar as if they were still being operated by completely separated and unrelated entities and/or individuals.

These culprits had to scatter the blame and obscure the ownership connections as much as they could, and the pattern emerging now shows that they were successful at getting away with these tactics for a long time. If you look closely you can see all the lines of connectivity between these businesses, but on paper and from a distance the names are all different and the associations are hidden. The casual observer doesn't pick up on it.

Global Cash Access made recent moves to further distance itself from GCA Co-Founders Karim Maskatiya and Robert Cucinotta, both having emerged in recent months as suspects playing integral roles in the massive conspiracy run through the company and other offshoots owned by Cucinotta and Maskatiya. The most involved scheme allegedly netted in excess of $26 million based on fraudulent fee rigging by the company. The Arizona license denial paperwork claims GCA officers were not only conscious of the fraud but actively worked to conceal it, knowing that the fine would be minimal if caught in the act.

BREAKING DOWN THE DOCUMENTS

The Arizona Notice leaves room for Global Cash Access to contest the conditions for denial and prove that they are a new and improved entity, but the sheer weight of the allegations included in the document are staggering and might possibly be insurmountable.

In a release issued by GCA officials about the notice, the language is purposely vague:

"The notice summarizes the basis for the department's intention and alleges that GCA, its founding stockholders and certain of GCA's management undertook actions that demonstrate that GCA is not suitable under the department's standards to act as a provider of gaming services to Native American tribes conducting gaming in Arizona," Global Cash said in the 8-K regulatory filing.

The company also harps on the stipulations that make this move by Arizona gaming regulators a preliminary one and not really a final say, explaining that they will fight for their state certification:

"The notice provides GCA with the right to an informal settlement conference as well as a formal hearing before an administrative law judge in Arizona. GCA intends to seek the holding of the informal settlement conference prior to July 15, and the holding of the formal hearing, if necessary, as soon as possible thereafter. In the meantime, absent further action by the department that prohibits GCA from doing so, GCA intends to continue its operations in Arizona in the ordinary course of business," Global Cash said.

"GCA takes the notice and the allegations made therein very seriously. GCA believes that it has taken appropriate actions during the prior 20 months that will permit GCA to fully demonstrate that it should be considered suitable for certification by the department. Many of these actions involve the termination of GCA's relationships with certain affiliated parties and have been previously publicly communicated and provide the basis for GCA's belief that GCA is in fact suitable to act as a provider of gaming services to Native American tribes conducting gaming in Arizona," the release further explains.

The Arizona report goes beyond the alleged actions involved in the perpetration of the skimming operation. Regulators also allege a conscious plan to deceive gaming regulators in Michigan in 2004 and in Arizona in 2005 by not disclosing all the required information about the mis-coding issues:

"GCA deprived a regulatory agency of material information needed to make an informed suitability determination," the Arizona report said of the Global Cash case in Michigan. Company founders Karim Maskatiya and Robert Cucinotta "both attempted to mislead the investigators to hide GCA's interchange fee fraud and their involvement in it," the Arizona report says.

Above all other allegations, charges of Maskatiya and Cuccinotta failing to disclose their questioning in the murder of Maskatiya's wife are most shocking. Here is the text of an Oakland Tribune article printed at the time of the Maskatiya murder:

=====================================

Oakland Tribune March 24, 1982

Police rule out burglary as motive in murder

Fremont- Police said Tues the fatal shooting of Laila Maskatiya was not the result of a burglary in her home because there were no signs of forced entry and nothing was taken.

Detective Dan Fuller said no motive has been established in the slaying, and there is no suspect.

Maskatiya's husband, Karim, told police he arrived home from work at 7:30 Monday evening and found his 29 year old wife in the bedroom in their $350,000 home on Guadalupe Terrace.

She had been shot twice in the head with a hand gun and several empty cartridges were found near the body. Police said the couple's 4 year old son slept through the shooting.

============================================

The Arizona documents say, "Police detectives questioned both Maskatiya and Cucinotta regarding the murder. Both were read their Miranda rights. The detectives felt that Maskatiya and Cucinotta gave inconsistent statements and did not cooperate with the investigation. They also felt that Maskatiya knew, but would not reveal, the identity of the murderer," the Arizona report said.

Yet, both men answered 'no' when asked by Arizona regulators if they had ever been questioned by a law enforcement agency, the report went on to explain.

The Arizona Gaming Department said Maskatiya and Cucinotta were on the GCA board of directors until June 2008, but resigned six weeks after being interviewed by the department. It says they continue to hold more than 25 percent of the company's stock. However, an SEC filing dated July 7, 2009 indicates Cucinotta holds no voting rights and seemingly has no control or major stock value anymore in regard to GCA.

In February, 2009 documents filed with the SEC, Maskatiya and Cucinotta both still retained more than 9 million shares in GCA. Yet, while it appears that Cucinotta may be on his way to being completely muscled out of the company he co-founded, Maskatiya unloaded 2,768,800 of his own company shares at a rate of $6.25 each as recently as a month ago (6/10/09).

In a section of the report called "ongoing matters of concern," the Arizona regulators say:

==> Global Cash Access has never acknowledged or taken any action in regard to its wrongdoing.

==> Global Cash Access has continued contacts with people and companies involved in the Visa fee fraud.

==> The former Global Cash Access principals failed to disclose information about the murder investigation to regulators in Arizona and Mississippi.

==> Cucinotta and Maskatiya failed to disclose other information including their ownership of various companies.

==> Global Cash continues to have problems with payments of fees to casinos and with payments to casino patrons.

==> Global Cash principals had contact with gaming regulators that created an appearance of impropriety.

"GCA has committed a theft, fraud and concealment," the Arizona report alleges. "It has conspired in these actions with (related company) USA Payment Systems. It has demonstrated a willful disregard for compliance with gaming regulatory authorities and has misrepresented and concealed material facts, documents and information in its dealings with the department and others."

"Casino vendors providing electronic fund access must be reputable, honest, diligent and effective. GCA has proven itself to be none of these," the report said. "Allowing GCA's continued participation in gaming in Arizona damages the public's trust in Arizona casinos and casino regulators. Casinos cannot properly operate where patrons continually suspect or assume they are being cheated, and regulators are assumed to be either involved or incompetent."

In other words: Who wants to play a game everyone knows is rigged? It seems fitting that Arizona has the designation AZ, because for Global Cash Access Arizona could be the first on an A to Z list of officials and operations who may soon 'Just Say No' to the type of underhanded tactics GCA is generating a reputation for.

It is a new era in America as the recession revealed some of the worst fraudulent transgressions against honest taxpayers and shareholders. Bernie Madoff might be the biggest of all the frauds, but he was certainly not the only massive con man involved in the economic collapse. He was not the only one making money off misrepresenting his business practices. GCA appears to be a company that grew fat off the same spirit of fraudulent activity, never worrying about getting nailed with the petty fine. They jobbed the system and got away with it, but they still expect to hold the public's trust. Arizona may only represent a small percentage of GCA's worldwide business operations, but this kind of taint could make lots of other dominoes fall.

Taking a closer look at current operations at GCA, it is clear that even if the company ousts Maskatiya and Cuccinotta from direct public roles with the company, GCA will still be intimate with the other companies these accused frauds also run and/or retain principal positions in. Consider the full text of another SEC filing from earlier this year, indicating some possible behind-the-scenes infighting going on at the company:

Item 1.02. Termination of a Material Definitive Agreement.

On February 13, 2009, Global Cash Access Holdings, Inc. (the “Company”) received written notice from USA Payments of the termination of the Amended and Restated Agreement for Electronic Payment Processing, dated as of March 10, 2004, by and among Global Cash Access, Inc., USA Payments and USA Payment Systems (the “Agreement”). The Company disputes the alleged breaches of the Agreement upon which the notice of termination was based, as well as the right of USA Payments to terminate the Agreement.

To the Company’s knowledge, Karim Maskatiya and Robert Cucinotta directly or indirectly hold significant ownership interests in, and serve on the boards of directors of, USA Payment Systems and USA Payments. Messrs. Maskatiya and Cucinotta are former members of the board of directors of the Company, and to the Company’s knowledge, they collectively hold approximately 23.6% of the Company’s outstanding common stock. At the time that the Company entered into the Agreement, Messrs. Maskatiya and Cucinotta were members of the Company’s board of directors and controlled a majority of the outstanding equity interests in the Company.

Pursuant to the Agreement, USA Payments and USA Payment Systems performed for the Company electronic payment processing services relating to credit card cash advances, point-of-sale debit card transactions and ATM withdrawal transactions, including transmitting authorization requests to the relevant networks or gateways, forwarding transaction approvals or denials to the Company, and facilitating the settlement of all funds in connection with approved and consummated transactions. Pursuant to the Agreement, USA Payments and/or USA Payment Systems were subject to a service level guarantee; were required to enter into agreements with card associations, networks, gateways and financial institution sponsors necessary to provide services to the Company; were entitled to fixed monthly fees plus volume-based transaction fees; and, subject to limited exceptions, were prohibited from providing similar services to third parties in the gaming industry.

This Agreement was to expire according to its terms on March 10, 2014. In its notice of termination, USA Payments alleged that the Company breached the Agreement due to two technology issues involving one of the Company’s other business partners. The Company has worked diligently and closely with the affected business partner to ensure that all necessary technology remediation has been performed. USA Payment Systems and USA Payments have acknowledged their obligation pursuant to the Agreement to continue to provide services to the Company during a 180-day transition period. The Company disputes the right of USA Payments to terminate the Agreement. If this dispute is resolved with the mutual agreement of the Company and USA Payments, the Company may continue to receive services under the Agreement or a successor agreement with USA Payments or USA Payment Systems. If the Company and USA are unable to resolve the dispute, the Company will transition to another provider of electronic payment processing services in the 180-day transition period. To prepare for the potential need to transition to a new provider, the Company is already engaged in discussions with an alternate provider.

So it seems USA Payment Systems sought to separate from GCA rather than the other way around. Perhaps this was a tit for tat response to the company trying to shut out Cucinotta. At any RATE (pun intended), whatever decision Arizona ultimately makes regarding GCA could completely transform the merchant services industry. If the appropriate attention is paid to this disaster, the needed regulation and oversight to prevent a repeat of this behavior could save billions of dollars in bogus fees in the long run.

To learn more about the GCA, Fertitta, Zuffa, & Xyience scandal you can check out XYIENCESUCKS.COM or my other stories here.

THE USUAL SUSPECTS: GCA Holdings, Kirk Sanford, Kathryn Lever, Karim Maskatiya, Omer Sattar, Fertitta Enterprises All Collude in BK

From Left to right: Omer Sattar, Kirk Sanford, Adam Frank, Frank Fertitta III, Lorenzo Fertitta

BY: Rich Bergeron

Even after a sale of the company’s assets free and clear of liens, new evidence is emerging tying together all the parties that made the ongoing bankruptcy of Xyience possible in a fraudulent scheme reeking of potential RICO Act violations. Revelations released in two separate derivative complaints brought against Global Cash Access (GCA) Holdings illustrate what the company’s own internal investigation failed to report about shady activity that led to a ¾ depreciation of the company’s overall stock value in November of last year.

The plunge in company stock closely followed the departure of GCA employees Kirk Sanford and Kathryn Lever to pursue opportunities made available at Xyience under Fertitta Enterprises funding. Karim Maskatiya, who is the founder of GCA, also reportedly invested about $5 million in Xyience. Fertitta Enterprises, GCA, and Xyience are not only related by financial ties, they also share a similar pattern and history of fraudulent behavior. However, a closer look at that history related to GCA’s actions puts their transgressions in a whole new category since there is no record that Xyience or Fertitta Enterprises have yet been sued for previous RICO Act violations.

The extensive record of past litigation against GCA lists one 1999 California case that does not include any electronic records of filings but does display the glaring charges brought under U.S. Code 18:1961’s Racketeering (RICO) Act against GCA's Kirk Sanford and Karim Maskatiya. Click here for Findlaw’s definition of what the RICO charge entails. Attempts to appeal the judgment in the racketeering case failed. Records show no further activity on the claim exists after 2003.

Another case with interesting and telling allegations came before The Superior Court of California in Sonoma County about a year ago. Allegations by a GCA employee alleged sexual and gender bias in treatment of employees along with even more egregious charges. Mary Lynn Scillacci (a former GCA employee who worked at an on-site cash access booth on the gaming floor at the River Rock Casino in Geyserville, California) filed suit against GCA for Wrongful Termination, Defamation, Intentional Infliction of Emotional Distress, Violations of the California Labor Code, Interference with Economic Advantage, and Violation of Business and Professions Code Section 17200. Scillacci claimed to have lost her job after weathering the adverse conditions imposed by male management staff at the casino until GCA allegedly fired her for raising issues regarding a failure to audit records.

Scillacci’s whistle blowing betrayed a nonchalance of GCA officials regarding proper accounting of cash transactions at the casino booth. Her superiors attempted to blame Scillacci herself for the auditing oversight despite her claims that she had no responsibility to audit the booth in question. Rather than being rewarded for calling attention to the problem, Scillacci was suspended by the company until an internal investigation exonerated her according to her complaint. The suit further explains that Scillacci’s previous job performance was so extraordinary that her superior recommended her for the highest possible raise that resulted in two promotions in the period of one year. She subsequently became a senior customer service representative at the casino around the time of October of 2003.

The complaint starts by outlining some of GCA’s qualities and responsibilities as a company.

Scillacci goes on to detail exactly what went wrong with the company’s accounting and what happened to her when she exposed the situation of her being blamed improperly (click on thumbnail to see larger pic):





The case closed in September of 2007 without a public disclosure of how the final settlement played out.

There is also a lengthy criminal case related to Global Cash Access regarding the alleged embezzlement and money laundering of Defendant Mark Steven Miller. By a sheer ironic twist, the same day of Xyience’s public “auction” date (April Fools Day), Miller agreed to forfeit some of his family’s property and pay $30,000 in penalties with a re-sentencing hearing scheduled for May 5, 2008. The case originated on February 1, 2002.

GCA’s extensive litigation history culminates with the recent filing of two nearly identical derivative shareholder complaints against a contingent of GCA insiders including Sanford and Maskatiya as well as a class action suit filed this past Friday. Again the problem details issues with accounting and auditing. When Kirk Sanford left GCA along with Kathryn Lever to join Xyience last November, the stock took a mid-November nosedive it never recovered from. Though there was another internal investigation and earnings reports were delayed as a result, none of the findings of that investigation resulted in any culpability or accountability on the part of any company employee.

The two derivative lawsuits (#1, #2) detail accounts of possible insider trading, fraudulent activity regarding under-reporting of damaging news, failure to provide millions of dollars in deserved commissions to clients, and breach of fiduciary duty charges.

The Las Vegas Review Journal reported on the class action case and pointed to issues with commission computing errors contributing to a “false and misleading” 2005 prospectus for a GCA public offering.

Compared to the similar litigation history of Fertitta Enterprises and their representatives, particularly with respect to the Station Casinos merger, the groundwork is there for a Civil RICO complaint against all involved parties in the Xyience bankruptcy. The GCA group and Fertitta Enterprises officials have all demonstrated an intricate pattern of fraudulent activity that they have for the most part been able to get away with thus far. Though civil penalties and legal fees might have slightly injured both groups of related individuals and their businesses in the past, criminal prosecution has never been pursued.

Our initial “Enron of MMA” report lays out exactly how the GCA contingent and Xyience cooperated and colluded with Fertitta Enterprises to bankrupt Xyience after setting up a huge UFC sponsorship deal. Since that report that predicted the bankruptcy long before it happened the nephew of GCA’s Founder Karim Maskatiya has taken the reigns of Xyience and made several declarations in bankruptcy court. Omer Sattar is now pretty much the only remaining GCA face representing the Xyience bankruptcy in the public eye. Kirk Sanford has since resigned from Xyience along with fellow Co-CEO Adam Frank. Maskatiya and Kathryn Lever have not offered any published comments on the subject.

Though Sanford and Frank were both said to be working for free in the Bankruptcy documents detailing their resignation, records show they were both actually paid hundreds of thousands of dollars as a direct result of the Fertitta funding of Xyience.

Frank, who was one of the longest standing Xyience board members when he resigned, signed a declaration that is the cornerstone of Xyience’s $25 million defamation case against me. A hearing to strike that affidavit as perjured testimony based on a contradictory recording of Frank I made last year (see below player) has been delayed multiple times by Xyience attorneys. Our Xyience page also includes copies of both the Frank affidavit and the recording of a brief, but incriminating conversation I had with Frank and Sanford prior to meeting both men during a UFC 78 junket paid for by Xyience:

Former Xyience investors claimed recently that Frank and Sanford resigned from Xyience in order to participate in their own separate bid for the company. Some sources pointed to both former Co-CEOs possibly becoming involved with Manchester Consolidated Corporation, which is the parent firm of “NEWCO,” the entity which will apparently take ownership of Xyience due to a recent approval of the sale of the company free and clear of liens.

Details of the sale process are still emerging, mostly through depositions regarding an attempt to delay the sale. Objections to the sale levied by legal representatives of the Bankruptcy case’s committee of unsecured creditors point to a possible conflict of interest in the deal. Manchester Consolidated is the only company known to have met with Xyience officials regarding a sale prior to the bankruptcy proceedings. Officers of Manchester which make up almost half of the entire company’s employees are also directly connected to Cott through their former high level employment there. Cott is the bottling plant that manufactured the stockpile of Xenergy purportedly worth $8 million that is at the heart of the bankruptcy proceedings.

Manchester representatives had at least three discussions with Xyience representatives, namely Frank and Sanford, prior to making their bid to buy the brand. Depositions in the bankruptcy also revealed that they met with Fertitta Enterprises GM Bill Bullard before the bankruptcy, too. A deposition of Sierra Consulting Group’s Ted Burr outlines other provisions of the company’s attempts to market the sale to other potential buyers. Though it seems there was a significant campaign to put the word out on the sale, Burr’s deposition does seem to indicate that more time might have been helpful in securing a better, less compromised, and more beneficial sale of the brand.

The recent revelations involving all the parties responsible for the bankruptcy betray the great potential for Civil RICO claims to be brought against the co-conspirators in defrauding and bankrupting Xyience to enrich themselves. The smoking gun of such a case would be the documents outlining the financing contract regarding Zuffa, LLC’s $350 million senior secured credit facility that three institutions provided the company last summer based on covenants that most likely falsely represented Xyience as a healthy and prosperous sponsorship partner. That financing note has taken a huge hit on trading block ever since, suffering from low ratings and declining value, which will eventually result in Zuffa having to pay much higher interest rates on the note than they initially anticipated.

On a side note, the sale of the company resulted in the local Las Vegas police being called to Xyience headquarters not long after the purchase became official. Police described the problem as a domestic disturbance, and no arrests were made. Also, a former investor reported seeing a giant dumpster in the parking lot of the building in recent days. Apparently the container was needed to dispose of a stockpile of expired inventory including old Xenergy product. The investor reported seeing some of the product leaking through the cracks in the dumpster.

As more details emerge in the bankruptcy case, and as my own case moves closer to hearings at the end of this month, I will keep putting together reports that outline the facts and back them up with documentation. The next blog on the subject will focus specifically on the bankruptcy case and what the approval of the company’s sale really means for the future of the brand.

Xyience Temporarily Taps Out

XYIENCE FILES FOR BANKRUPTCY

By: Rich Bergeron


Over a month before it became official, Fight News Unlimited reported that bankruptcy was imminent for Xyience. Our article entitled THE ENRON OF MMA exposed some of the reasons why the company is in such dire straits, but the Las Vegas Review Journal dug a little deeper this week and examined the actual voluntary bankruptcy filing Xyience went forward with last Friday.

The official filing comes after an involuntary bankruptcy petition was filed on behalf of several investors tied into a lawsuit against the current Xyience regime. The petition, filed January 3rd, calls into question the Fertitta Enterprises loan and would essentially block any attempted foreclosure by the current controlling interests, and place all the assets under the court's discretion until the fight over the company is finally decided. Zyen, LLC, the company designed by Fertitta Enterprises to handle the $12,000,000 loan given to Xyience last year, filed a NOTICE OF STRICT FORECLOSURE late last year that allowed for only a 90 day window for investors to mount a fight for the company.

The LVRJ Xyience Bankruptcy article, now being circulated across the on-line MMA news landscape, dropped some major bombshells. Yet, there were some major inconsistencies that went to press in the piece, and the overall tone was extremely favorable to the current regime that is attempting to lock out hundreds of the company's initial investors.

One of the most outrageous misrepresentations of the facts reported include the following passage in the article:

"Sattar said the bankruptcy became necessary when the company was unable to raise $7.5 million more from shareholders."

This quote, coming from the lips of the company's newly-crowned president Omer Sattar, is a blatant misrepresentation of the actual situation that gave rise to the bankruptcy. Before Fertitta Enterprises provided loan capital to Xyience, a letter went out by email to a large group of shareholders telling them that if the deal was not ratified the company would go bankrupt. Once the deal was approved by less than half the shareholders, much of the Fertitta investment went right back into a hefty three-year sponsorship extension with the UFC and also helped to pay off past due sponsorship fees of approximately $6.5 million. According to the Las Vegas Review Journal the Fertittas put almost $18 million in total capital into Xyience, and a hefty chunk of that money came out of one pocket only to go right back into another, since the Fertittas are 90% owners of the UFC. Essentially, Xyience would have had double what they needed to stay in operation if they opted not to be a UFC sponsor this year to the tune of $15 million. Even with the extension in place the latest UFC sponsor (Harley Davidson) bumped Xyience from the center of the mat, and now it appears the company paid an absolutely ridiculous price to have their name on a couple cornerpads of the octagon.

The Las Vegas Review Journal is either guilty of extreme bias or sloppy reporting. Don't expect any follow up stories to question any move the Fertittas make. First of all, the Las Vegas Review Journal is partnered with The Las Vegas Sun, which is owned by the Greenspun Family. The Fertittas' Station Casinos partnered with the Greenspun Family on some notable casino developments. Aliante Station and Green Valley Ranch are both joint operations put together by these two major Vegas movers and shakers.

The Las Vegas Review Journal appears to be providing aid and comfort to their business partners in their latest struggle to save face on Xyience. The LVRJ even quoted Sattar's claims of death threats issued to Xyience officials without even contacting either of the men who reportedly made those threats in order to get a response. Ric Klingenberg was accused of making the threats along with his brother David Bergstrom. The dispute arose over a payment owed to Klingenberg's elderly mother, and both brothers were reportedly given the run around while trying to secure a check for $20,000. Reached by phone recently, Klingenberg categorically denied the description of the events Sattar presented in the voluntary bankruptcy filings.

"I went to that office, that part's true, but we didn't storm in there," said Klingenberg. "And we didn't threaten anybody's lives. We did go in and close the door, because, isn't that what you do when you have a meeting?" Klingenberg said Xyience CFO Michael Levy promised him his mother would get paid when the Fertitta Enterprises loan came through. He also said he left Levy a phone message telling him when he would be there to collect the check. Levy reportedly told Klingenberg his mother "was going to have a Merry Christmas" in late December.

"Voices were raised, and everyone was talking at once," said Klingenberg. "We were told to go find Adam Frank, because he was the only one who could authorize a check." He was later told he'd need to get an attorney in order to collect the funds.

Klingenberg also claims that Sattar lied as far as the bankruptcy. "They didn't file bankruptcy, we did," he said. Klingenberg's family trust is the main plaintiff in the investor suit under which the involuntary bankruptcy petition was filed. He explained that the company's hand was forced by their initial filing.

In the aftermath of the bankruptcy announcement, it now appears the bad press and the legal battles mounting have forced the company to now explore the possibility of selling the whole operation. A follow up article in the LVRJ reports that financing has been approved to help position the company for a sale even while the legal battles for control of Xyience rage on.

The Fertittas have not provided any published comment on their tactics regarding Xyience, leaving President Omer Sattar to provide the company's perspective to the public. Sattar is part of a group that came in to run Xyience from a company called Global Cash Access. Questions surrounding insider trading charges and a late filing of GCA's third-quarter report for 2007 followed the departure of the GCA contingent that is now operating Xyience. GCA's stock plummeted in November of 2007 and has yet to completely recover. Station Casinos was one of GCA's largest accounts, so it appears that the partnership between former GCA employees and Fertitta Enterprises stems from that initial connection.

Although the UFC continues to operate as the top dog in the Mixed Martial Arts industry, this latest debacle with Xyience and some other recent developments point to a rocky future for the pioneers of the sport. While other leagues are constantly looking for ways to co-promote major events, the UFC continues to refuse to even acknowledge that any other league competes with them. Their lawsuit against Randy Couture is also looming as a large distraction. On top of that, Tito Ortiz is planning to leave the organization after his next fight according to mmapayout.com. While Ortiz has never been one to hold his tongue about his frustrations with Dana White, he has also never been as popular as he is now with MMA fans. As the boyfriend of Pornstar Jenna Jameson and a contestant on the celebrity edition of the Apprentice, Ortiz is at the height of his fame right now. Wherever he goes from here, that league is sure to benefit from his star status while other UFC fighters will take note and might decide to follow his lead when their own contracts run out.

The UFC seems to be having enough growing pains without their principal owners getting heavily involved in a company with such a horrible reputation. Much of the mainstream MMA press reporting on this story of Xyience going bankrupt have just now started asking questions about what's really going on. The question on everyone's mind seems to be: "Why would the Fertittas want to buy into their own sponsor?" We're talking about a huge , profit-driven company here. Fertitta Enterprises is not the kind of outfit you'd expect to touch Xyience with a ten-foot pole. Yet, here they are up to their necks in debt and tied in to the point where they seem to be more willing to cut their losses than actually rebuild the brand. So, what's the motive. Well, you simply have to go back in time a bit to find the answer. We put together an in-depth report over a month ago that outlined how this day would come.

The truth is, the Fertittas never intended to restore the dignity of the company and save the day for the shareholders who built Xyience. If that was their plan, they'd be front and center in the press talking about it. Instead, they're hiding behind straws put in place to act as the fall guys. If they really wanted to clean the slate and keep the company in full operation, they would have tried to secure more financing a long time ago. They would have put the company first. Instead, they immediately signed a contract extension with the UFC as soon as they put their money in. The whole thing just stinks.

This whole bankruptcy fiasco has nothing to do with not having the money to prevent it. If they don't have it, they can certainly get it. The real reason they decided to file bankruptcy is so they can lock out an estimated 380 shareholders who built and sustained this brand even while fraud and corruption were tearing the company apart from within. Just when these folks were told their payday was on the horizon and there could be an IPO as early as this month, these investors are now forced to reclaim their interest in the company through litigation that could last years. Some of them have lost their life savings.

I have run into a lot of MMA fans who read my stories and other stories about Xyience's issues and ask, "Who cares?" They wonder why it's a story at all and who's the victim. The Enron, Tyco, and Worldcom scandals have tempered the American public to such an extent that we seem to expect this kind of back room underhandedness and duplicity. In one case I found a thread where one fan actually praised the Fertittas for the way they rigged their own loan by investing in Xyience.

Yet, there is so much about this story that people should care about. Let's just go back in time again to when Xyience was at the height of its popularity. All kinds of fighters were raking in big sponsorships. GNC agreed to take on a wide array of Xyience products. The Xyience commercials were a viral video hit because of the sexy models drinking Xenergy in them. Hundreds of investors had the feeling that they could depend on this thing becoming really big. Xyience was a big ticket sponsor at a time when fighters were getting paid chump change compared to boxers. Most fighters are still reliant on sponsors, and they will be until the sport gets sanctioned in more states and becomes more of a mainstream draw. In the wake of this huge scandal that now enters Chapter 11 (pun intended), it's clear there's no other sponsor that's going to equal what Xyience was doing in the beginning. Harley Davidson is not out sponsoring all kinds of fighters. You won't find the Lumber Liquidators logo on any fighter's shorts.

The bottom line is a lot of people got screwed so the Fertittas and Dana White could get themselves a fat dividend check. They laid waste to PRIDE first, and now they're focused on Xyience. Every step of the way they've lied to the public about what they were going to do. They said they were going to keep PRIDE going only to let it completely dissolve with no hope for ressurection. Investors in Xyience were told that the Fertitta deal was the only option and they had to do the deal or watch the company go bankrupt. They did the deal, and the company is still going bankrupt. The Xyience mouthpieces working on behalf of the Fertittas said they were going to reorganize Xyience and keep the brand going only to now come out and announce plans to sell it. It's sad that some people out there are willing to chalk all that up as good business sense.

In the end UFC fighters continue to get paid a fraction of what they should for the risks they take. Some great organizations rose and fell because of greed. Honest investors were shafted because the rich wanted to get richer. And we wonder why the economy is in shambles. Look around. People constantly get away with this kind of shady behavior simply because so many of us shrug our shoulders and say, "Who cares?"

As for who's the victim here, it's anybody and everybody who thinks there's nothing wrong with this picture. It's all the folks who choose to look the other way because great fights are still getting made. It's all the legions of brainwashed sheep who refuse to open their minds to the possibility that they're being lied to. It's all the screwed investors and all the fighters being used while their bosses are raking in all the big money. If this kind of behavior is allowed to go on unchecked, everyone loses.

IS XYIENCE'S TURKEY COOKED?

XYIENCE’S NEXT CHAPTER

By: Rich Bergeron

Never in my wildest dreams did I ever expect to get invited to a UFC event after beginning my series exposing the ongoing mess over at Xyience, Incorporated. If I doubted that possibility while I was working on the story, I had no good reason to change my outlook after being sued by Xyience for $25 million in the 8th District Court of Nevada in July of this year.

Yet, I just got back from New York City where I stayed in a room on the 30th floor of the posh W Hotel in Times Square in order to attend a UFC event on Xyience’s dime. Even while this lawsuit hangs over my head, I was there at the fights and invited by Xyience to take it all in. I clearly didn’t imagine actually sitting in the stands in Xyience’s seats and seeing UFC 78 live. That happened. It doesn’t make any sense, but it happened. I even had a witness who saw the fights with me and met some of the Xyience folks. I brought a friend in the Web-site business from Newark, New Jersey where the Prudential Center Arena that hosted the fight is located. He can vouch for me that I really was there.

What began as a minor inquiry into a questionable situation at a supplement company has now blown up into a full-scale monster of a financial mess. A new chapter is unfolding, one much more intriguing and powerful than anything I have produced thus far. The latest infusion of capital and the circumstances surrounding the delivery of this deal is coming to light and looking extremely damning for the players who made it happen. What appears to be happening now is a situation in which the new investors are trying to bankrupt the company and write off the rest of the people who put in money early and stuck with this company from day one. All of this is resulting in a level of infighting that has left both sides now seeking to enlist my help.

No, I’m not dreaming, I keep telling myself. This is really happening.

First of all, the players who invited me to the Big Apple are Xyience CO-CEOs Adam Frank and former Global Cash Access Holdings Director Kirk Sanford. Both have some skeletons in their closet as far as their past business dealings, and both men are also dealing with a significant backlash due to the stock options they set themselves up with and the 600,000 shares they each acquired when they came on board the Xyience train. These guys contacted me and made it appear as if they wanted to put everything behind them. They kept telling me the lawsuit would be over and they just wanted to meet with me and talk about the future of the company. They even talked about hiring me on as an advisor to the board of directors.

Naturally, I don’t necessarily think it’s cool to be walking around with a $25 million lawsuit hanging over my head. I figured I’d hear them out and see what they’d bring to the table to end it. These guys acted like they were intent on really helping the company get cleaned up. Yet, over time and interaction with Frank and Sanford, I realized that my trip to NYC would be better off as a recon mission. I took the opportunity of our first lunch meeting to invite a new friend to our table who works for a company in NY that provides capital in situations exactly like the one Xyience is facing right now. Frank and Sanford seemed a bit miffed, but they accepted our new guest and soon were talking to him about the future more so than me.

They even wanted to know how soon and how much money they could get out of this company if they needed it. My friend told them of one instance when his company provided over $1 million in a 24-hour period for a California power company.

The tone of the conversation had Frank and Sanford maintaining over and over again that the company needs to be bankrupted. They also repeatedly mentioned the 340 investors they would have to buy out or appease if they chose another route. That’s when my friend suggested the “knock on doors” approach. Basically, that procedure involves going directly to investors and buying them out one by one.

When asked if the plan was to ultimately go public, Sanford was especially irked by my line of questioning pointing to the Fertittas favoring private companies over public ones. He finally explained that they would do whatever they had to do to make sure the company is the most profitable it can be.

When we concluded lunch, Frank and Sanford each plopped a $100 bill down on the table for me so I could get a ride to Newark for the fights. I told them I spent just about all the travel expenses they sent me for the trip on my suit, which was true. I went the extra mile to look professional only to arrive to find Frank and Sanford dressed like they were ready to go on a camping trip.

My first impression led me to believe both men were trying to take over Xyience for themselves and reap all the benefits with a much smaller group of investors than they currently have to deal with. Coupled with the Fertitta Enterprises contribution, it looks like Frank and Sanford are in position to be part of the company’s new regime whenever the current mess is sorted out. Yet, all their talk of cleaning up the company didn’t match up with what they told us they wanted to do next.

My friend and I spoke at length after Frank and Sanford left the restaurant. This potential investor/financier I had just met was eager to provide capital and help this company out of the current mess. One of the shareholders in the other camp trying to oust Frank and Sanford complained to me recently to let me know that the new leaders of Xyience just can’t seem to find the capital they need to keep the company out of trouble. Yet, I found it easy to find someone with enough capital to help, and here I am just a blogger with virtually no business and financing experience.

It is my humble opinion that Frank and Sanford don’t want to find new capital. They instead appear more willing to bankrupt the company, reconstitute it, and rake in the profits without having to share revenue with a huge pool of folks that bought in early when the company was looking a heck of a lot more successful than it looks now.

What also baffled me is that my friend found me by looking at my blogs about Xyience. The Xyience lawsuit claims that my stories made it practically impossible to find investors to put money into this company. Yet, I only made one phone call and found someone willing to offer up his company’s extensive coffers to help.

Later on, I reconnected with Adam Frank at the venue. My fellow Web-site entrepreneur friend met me there late after a whole lot of hassle trying to network with him and figure out where he was. I went to find Adam Frank in the Xyience suite they had for the fight, but I ended up spending most of the night in my seats. Frank was scarce for most of the evening, and even before my friend arrived he didn’t seem very talkative. It appeared to me that these guys had no plan as to how to deal with me. I had documents and paperwork in hand that I almost passed off to them in hopes of getting a deal done, but something held me back. Something was not right.

After watching the great card, I wasn’t able to locate Frank at all. I called him and asked if there was anything going on afterward, giving him one last chance to meet and negotiate. He never called back.

Having had no chance to do any real business as far as planning for the future, the trip became more valuable to me as an informal deposition. I was able to measure the commitment of these two men, and I found it lacking. As far as making sure there is really an effort to clean things up, I think I came away with the impression that the Xyience situation is only getting worse. I was disappointed in Frank and Sanford’s approach to things, and I am glad I had a business and financial expert by my side to get everything out of them in discussion. Had I been there alone, I wouldn’t have thought of half the questions to ask about the business aspects of the situation.

I ventured home via Laguardia Airport and set the stage for how to proceed. Such a big charade is par for the course with Xyience, as that is how I was told they attracted much of their initial investors. They get them to come to the fights, see the Xyience name associated with the big UFC event, and wine and dine people into chipping in. I have to admit, I was spinning my wheels thinking of how I could chip in after all was said and done and I was in the air on the way back to Boston.

My latest motion set to be filed soon in my lawsuit asked for $1 million before the trip. I figured I’d start the negotiations there, and I did so through some detailed emails explaining how I thought I could help from the inside. I even offered to have the contract structured over 2 years.

Putting all that out there wasn’t enough, though. I knew there also had to be an alternative plan, which would be to keep the lawsuit going. To me, I felt a bit disrespected by the whole process, because Frank and Sanford assured me the case against me was going to be over soon, and I told them I wanted it over and done with by the time I got to NYC. They lied to me. Then they told me they were going to give me $5,000 for travel, and they only gave me $500. On top of those red flags there was the affidavit Frank signed that is the centerpiece of the case against me:

Give that a read, and then tell me if this conversation I recorded with Adam Frank and Kirk Sanford makes any sense to you:



Whatever the possibility of me coming on board at Xyience, which I knew was probably pretty far fetched anyway, I still had a $25 million case hanging over my head.

To me it felt like someone pointing a gun at me telling me they’re not going to hurt me, but they never stop aiming it at my head while I talk to them. The lawsuit itself was like someone punching me in the head and then turning around and suing me for hurting their hand. It was always Xyience defaming me through subversive blogs that spouted complete bullshit and didn’t even include one shred of proof. I only printed the truth.

So, I decided to play hardball when I came back from my trip. I increased the asking amount in my motion for Rule 11 sanctions to $5 million in damages and financial sanctions against the plaintiff. I feel like a message needs to be sent here. Corporations can’t be permitted to crush innocent people under their feet. If I stand in the way of Xyience making a bright future possible for themselves it is only because I exposed the truth about what they were doing wrong. If my stories were lies the suit would be applicable and needed, but they were not lies.

BERGERON'S RULE 11 MOTION AGAINST JAMIE COGBURN, RUSSELL PIKE, AND XYIENCE, INC.

Whatever happens from here, I am in a promising position. What began as a skeptical public saying I had some grudge against Xyience has now resulted in lots of people starting to come out of he woodwork realizing I am right. Some of the more mainstream MMA press backed my reporting up with recent stories that confirmed what I wrote months ago. The general public is even starting to sniff out the truth. Blog comments I’ve read about the subject have featured most people giving me props for sticking to my guns.

However, I know I still ought to and need to do the right thing here. I need to carry this through to the end and make something good happen here with Xyience if I can. People on all sides have told me how damaging my pieces were to the company, and I am honestly sorry about how that might have affected the innocent folks there just doing their jobs. Yet, the ultimate purpose was always to do a great deed and expose the shady behavior so it could be fixed. Now it appears that the involved parties have vastly different ideas about what it will take to truly fix this broken company. The infighting threatens to destroy Xyience from within, and I'd hate to see that happen. Although it makes it easier for those attacking me to believe I have it out for Xyience, I really don’t. I have always wanted to see this company cleaned up and put back in line to be a great contributor to the MMA scene again like it once started out to be.

Stay tuned for more.